Exhibit A: The story of my life.
Like most personal finance bloggers I’ve encountered, I manage my own portfolio. With the help of low-cost brokerages like Fidelity and Scottrade, and wonderful research sites like Morningstar, Value Line, and FAST Graphs, it’s easier than ever for individual investors to do so. However, unlike many of you out there, I didn’t start that way. Like I mentioned in an earlier post, my first investment account was with my parents’ old full-service brokerage. I stayed there for a couple of years, until I began to understand investing on a more-than-cursory level. After taking a long, hard look at my portfolio’s performance, and comparing it to what I felt it should be, I decided to part ways with that advisor and move to a low-cost online brokerage.
So for today’s post, I figured that while this site is in the get-to-know-me stage, I’d talk in detail about my previous experiences with a paid financial advisor. Spoilers: it didn’t go very well.
For the sake of convenience, and because I’m too lazy to find my old brokerage statements, I’m not going to catalogue every single stock and mutual fund that I owned during my time there. But here’s a small snippet of my investments, some good, some bad:
- AAUKY (Anglo American plc) – Let’s start off with a positive one, shall we? This wasn’t that bad of an investment (heh, maybe because I’m the one who suggested it). I first came across this one because they owned De Beers, and I was on a mining history binge (I’m a pretty big history buff). So I bought it at $12 or so, and ended up selling it at $23. Looking at it now, its dividend consistency is terrible, and it’s trading at around $11, so I’m glad I no longer own it. But it treated me very well, especially considering this was the first individual stock I ever owned.
- GMR (General Maritime Corp) – I still don’t like thinking about this one. Bought it around the same time I did AAUKY, but the price went in the exact opposite direction. I told my advisor that I wanted a shipping company, since I was born in Michigan and the Great Lakes were such a big part of my life growing up; hey, I was young, cut me some slack! So he came up with GMR and Knightsbridge Tankers, and suggested I go with GMR, because “smaller stocks can have more upside”. Well, the Great Recession happened, and my small stock kept getting smaller and less valuable, dropping from $11 to $5 to $1. Well, I kept adding to my position, since dollar-cost averaging down is a good thing, right? And wouldn’t you know it, I wake up one day, and the company is bankrupt. That was the first and only time that’s ever happened to me. And VLCCF is still around, and still pays a high dividend, because why not.
- PM (Philip Morris International) – Yes, the same PM that many of us own in our portfolios. This is actually a company I wanted to own (though I can’t really recall why; probably some positive analyst report). My lovable advisor strongly discouraged the purchase of a tobacco company, since the industry was under so much pressure. I still cringe thinking of all those dividends I missed out on. Oh, and the kicker? I put the $8,000 that would have gone into PM into a freakin’ CD earning 0.45%! This was a mistake that I ended up rectifying later, as PM is now one of my largest positions.
- LUV (Southwest Airlines Co) – This one aggravates me, since I liked LUV a lot (I still do, even though it’s not a true dividend growth stock). I love flying on them, and I decided to follow Peter Lynch’s philosophy and invest in what I knew was a good company. My advisor was very cautionary here, saying that airlines were generally a bad sector to invest in. But I invested anyway, bought in at $9. My advisor asked me to consider selling literally every time I called him, like damn was he persistent. So I ended up selling at about $13. It’s almost at $34. Although I did make money, I missed out on a solid 3-bagger, because I didn’t stick to my guns well enough.
- ABX (Barrick Gold Corp) – I got lucky here. My advisor suggested it as a potential turnaround play. I didn’t really like what I saw, so I decided to pass. Soon after, it cut its dividend by 75%. Breathed one heck of a sigh of relief after that!
- PCS (MetroPCS Communications, Inc) – Oh man, this one still stings. My advisor brought this one to my attention, saying how wonderful of a company it was. I bought at $16 or so, and like a week later, the price collapsed by 50% (never figured out why). I sold near the bottom, and they were eventually bought out at $11 or so, if I recall correctly. Thankfully, this was a smaller position, but losing that much money so soon after making a purchase is never fun. Don’t even think they paid a dividend …
- QCOM (Qualcomm, Inc) and MSFT (Microsoft Corp) – To his credit, he did suggest these, and I actually still own them! They’re both listed on David Fish’s excellent Dividend Champions List, and as long as they stay there, I’ll keep owning them.
I realize now that I’m not completely blameless with these mistakes either, and that I may even sound a bit whiny. I should have been more forceful with what I wanted, or pushed back when I didn’t like something. But in fairness to me, I was just a kid. Through most of this time, I didn’t even know the difference between a stock and a bond! I was more concerned with Xbox and AP tests than my financial future! I figured that he had enough experience in the industry that he knew what he was talking about, and trusted that he really did care about my financial stability.
But really, at the end of the day, I don’t think that my advisor had my best financial interests at heart. Sure, he was a pleasant enough person (that’s why I won’t name him or where he worked, out of respect for that). But I started to realize that what I needed with my money and what he wanted to do with my money were two separate, mutually-exclusive things. I wanted growing dividends and high-quality companies (even if I didn’t yet know what DGI as a philosophy was), and he wanted me to trade and invest in companies that, honestly, didn’t let me sleep well at night. And looking back at the investments I discussed and others I didn’t, I just wasn’t getting what I should have been out of that relationship. Soon after this, I closed my accounts, moved my assets to an online brokerage, and for the first time, got myself on the right track to FIRE.
Have you ever used a full-service financial advisor or wealth manager? How did it go?
Image source is available here.
Disclosure: Long PM, QCOM, MSFT
12 Comments
Hi DD,
You said it about ditching the advisor. If all the research shows that the multi-million-dollar-per-year hedge fund/mutual fund managers can’t beat the market, why would I possibly want to trust my money to a guy making a tenth of that?
For our own portfolio, my wife and I invest heavily in cheap, broad index funds and dip our toes into individual, reliable, and affordably priced dividend-paying stocks. For us, it’s all about low fees and reasonable P/E.
Keep on investing! Looks like you’ve got one heck of a head start, friend!
Thanks,
Charles
Thanks for stopping by, Charles! Seriously, although he did make some good choices, my performance was solidly substandard. What was I even paying for, you know? Could have just crammed it all into VTSMX and called it a day, and still have done better. Sounds like you’re handling your portfolio the way it should be done; best of luck!
I wouldn’t mind using a financial adviser if they’re in a much better financial position than me. But I think most still need their day job so that probably means they’re not financially independent themselves. That means I can’t really gain much from them. Now, if I took advice from Warren Buffett then that would make sense. Mainly because he’s in a position that I hope to achieve 1% of.
Great post. Cheers!
Good point. If they’re FI already, they must really know their stuff, and assumedly can help me out too. Reminds me of a passage I read in “The Millionaire Next Door,” about a multimillionaire investor who kept getting cold calls from professionals who wanted to manage his portfolio. He had one simple rule: if they could verify that, over the past 3 years, their portfolios have outperformed his, he’d give them his assets. Not a single one could do so!
I’ve never used an adviser because I always figured I could go just as good on my own. Luckily I dipped my toes into investing through just my 401k and started trying to learn as much as possible then. All the research points to their effectiveness not being worth the added costs. Even more so if they aren’t on the same page as you when it comes to investing.
Definitely true. I found mine wasn’t worth the cost, which is the general point I tried to make. He may have actually made me worse off, fees included! Even if the advisor and investor were on the same page, for most situations, it’s just not worth it.
Advisors typically use the same information sources as we do when determining an investment decision. The way I see it, if I’m going to lost money or make foolish choices, let it be on my head. I’d rather lose my own money rather than pay someone to lose it for me. Thanks for sharing your experiences.
That’s true; I definitely noticed a lot of overlap in the research given to me by the advisor and the research available to my on my online broker. That’s a good philosophy to have. Thanks for stopping by!
I think that with the internet you can get almost as much as a financial advisor will give you (at least for what the average person is seeking). Most people really just want another person to bounce ideas off of these days or someone to suggest things to them. If you find the right circles in the internet you can actually find all of these things without having to pay someone to bounce ideas off of.
I’ve never had a financial planner, but I could see that if I near early retirement I might consult with a tax advisor for suggestions on how I should approach withdrawing from the various accounts I have to optimize my taxes.
Yeah, that was definitely a big reason why I stayed so long. The validation you get from having someone say your idea was good is definitely worth something. That’s why I’m glad I found the personal finance blogging community; like you said, I get good research ideas and people to bounce ideas without paying someone for the privilege of losing my money for me! I certainly agree on the tax professional; they are definitely useful, and I’m actually looking for one now. Take care!
Wow, the GMR was a rough one. I remember one thing that has always rang loud for me about the market- Do not catch a falling knife. That is why I did not add any GE shares when it hit 5+. I was scared as hell. You are correct to have gone without the broker. They get paid to make trades, and they get probably get kickbacks to push certain stocks. I know 2 people who had Merril Lynch full service actively managed, and they are broke because of all the trading the so called broker did without them realizing it was being done. Good luck going forward.
Keep cranking,
Robert the DividendDreamer
In hindsight, I definitely wouldn’t have started buying until I saw a decent bottom (in this case, never!) I actually feel PCS was worse for me. GMR was a slow and steady decline, which I can better deal with now that I have experience. But PCS cut in half literally in a day. For some reason, that stung a lot more. I am glad I left, and your comments on Merrill Lynch just confirm it. Hope they were able to recover.