The Contribution of an Investment Adviser
As mentioned in the famous book The Art of War, by Sun Tzu, every battle is won with preparation.
Every time money is lost from a trade, someone is on the opposite side, and has won. That someone took your money. This means that your opponent had either done better research, or had better tools, or had better studied economic and business data.
Can you do it yourself?
It’s unlikely. At least not at the beginning.
The true motivation for your activity
The first question someone has to ask themselves is the reason for choosing to invest in the stock market. Do not rush to give an answer that you do this to make money. It is not self-evident. Not everything is about making money.
Some, even though they do not realise it, get a sense of satisfaction from the adrenaline that the daily monitoring of the market and the volatility of their investment positions offer.
Others feel that the joy of anticipation, the trip to “Ithaca” is more important than the actual profit. Another part of the investing public feels satisfied from the research, which when done correctly, can be very creative work.
In a nutshell, not everyone invests just for the sake of monetary profit. They are of course happy when they gain money, but they rather enjoy the process of winning.
Having made this clarification, let’s go back to the question of how to make money!
Will I really need help?
When it comes to important decisions in life, you usually seek the guidance of a professional. That is the reason you visit a doctor, a lawyer, even a gardener if you want to take care of the lawn.
Therefore, should you use a professional investment advisor or not?
This is the question which troubles almost all investors from time to time.
The stock market is a place where you can make money if you get involved occasionally and you have luck on your side. But if you do not work hard (a lot of hard work), it is unlikely that luck will last.
There’s not much difference from the checkers board. It is possible that as a new player to be favoured by the dice and win against an experienced player in a game, but it is impossible to win a lot of games.
You cannot avoid the responsibility
Remember that you, and only you, will eventually be responsible for your finances. You are responsible for whether, or not, you receive help from a broker or a professional adviser.
The fact that someone is a professional does not mean that he is also skilled. As happens in all professions. It is important to realize that it does not matter how much responsibility you have give your advisor. Because you have chosen him.
If your advisor proves excellent or incapable, you are the one that has to live with the consequences.
How will I recognise a skilled advisor
You need to have a good and bilateral relationship with the advisor, who will guide you in making the correct investment decisions and establishing your investment strategy.
The investment advisor should not tell you exactly what to do neither of course will he be a “yes man” and who agrees indisputably to all of your views. Avoid someone who treats you arrogantly, talking with fancy jargon and difficult notions. Find someone who simply speaks your language.
Smart and experienced people make things understandable to others, not complicated.
Irrespective of your advisors reputation or fame you have to make sure you understand what he does with your account. Ask questions. No hesitation and shyness fit here. It is your money we are talking about. Your future. There is nothing worse than being complacent that everything is fine, when in fact it is not.
Find out what the advisor has done with other clients. Today it is easier than ever. The Internet is full of information.
How much does it cost
The basic cost that everyone pays, whether they have a professional advisor or do it on their own, is the cost of the commission for each transaction. That’s from where the reward of the brokerage and your broker comes.
The broker or stock broker is a sales man. If you are lucky and he knows about analysis, he can provide correct consulting. Think about him as a pharmacist. He knows some things, but if you have something serious or very particular, you need a doctor. Maybe a surgeon.
But be careful. As we know very well, a doctor can make you well, but can also ‘kill’ you before your time.
Professional money managers are not interested in making a lot of transactions; because they don’t get paid from them. The professional money manager focuses on achieving return on capital. The cost is proportional to the trust fund or a percentage on profits or usually a combination of both.
When they systematically began to appear and acquired the status of hedge funds and of private equity, the rule that prevailed was the so-called “2 and 20”. Which meant 2% annual payment on management fees and 20% on profits.
Today, the average has dropped. The formula has turned into 1.4% and 17%. The most capable and efficient, based on their history and reputation, charge more. Those who have reason to be more competitive on price, charge less.
Bad and good professionals exist in all professions. Be careful then. Mistakes are not forgiven. When you make a wrong move and lose, you will not get your money back.
The stock market is a shop that does not accept returns. Even if those mistakes are made by someone else on your behalf.
Vasilis Pazopoulos is an economist and a stock market analyst, with articles on capital.gr and other financial sites.
He can be contacted at: email@example.com
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