September 23, 2010

Jim Cramer Results Vs S&P 500

Its very tempting to want to trade stocks.  Its very natural to want to be an active investor.  The irony is that the passive investor beats the active investor all the time over a reasonably timeframe. 

Jim Cramer (Mad Money) is very informative and certainly fun to watch however I read recently that he has beaten the S&P 500 just a few years as a commentator and when you consider the amount of commissions, even at $7 per trade, you really don't end up making more following his trades versus the S&P 500.  Additionally, the capital you would need to follow his recommendations is too large for most investors so you have to pick and choose and you know how that goes, you will invariably pick the losers :(

To be fair, Jim Cramer has claimed that his hedge fund beat the S&P 500 over its twelve year run, although, this has never been verified and its important to point out that he wasn't the only stock picker.

Its boring but buying the S&P 500 when you feel like it and adding to it over time is THE winning strategy, period.  Sure, you can lose money that way too but at least you can sleep at night knowing that with that strategy, you will beat over 90% of the professional money managers over the long haul.

September 3, 2010

Cash and your Stockbroker

Do you know why your stockbroker hates cash?
Because he doesn't get paid when you have cash on the books.

Its stating the obvious but stockbrokers and financial advisors get paid to invest your money, period.  Not watch it.  That's right, stockbrokers get paid only when you are invested, period.  They get paid either by commission when they buy something for your account or as a percentage of invested assets.  Neither of which is cash in your account.

This is a huge conflict on interest, in my opinion.  Think about it.  You send him some cash after a nice bonus and the market maybe looks tenious at the moment.  What do you think happens next?  Thats right, you get the call.  We need to invest this right away, and if that happens near the end of the commission month, well, you know the rest of the story.

This is just another reason that you need to handle your own finances.  Its not hard.  Its easy.  And you can rest assured that your account is in the hands of the person who cares about it the most, you.