While driving to work today, I was racking my brain for a good topic to write about when suddenly, a black Ferrari convertible zoomed past me. Normally, I would not give that a second thought, but I could not help but notice the license plate which displayed an abbreviated form of the sentence, “I sell stocks.” The driver was clearly on his way to one of the large brokerage firms in Irvine, and he was obviously in a hurry to get started on selling his stocks. I can’t say that I blame him because his car suggests that he is doing quite well for himself. The question I might ask is, how are the buyers of these stocks doing? Or to put it in the spirit of the incomparable Fred Schwed, where are the customers’ Ferrari convertibles?
In all fairness, the Ferrari convertible driver probably saw my “index it” license plate surrounded by the caption, “Smart investors buy index funds” and thought to himself, “What a sap! Why would anyone purposely settle for average?” The reality, of course, is that index fund investors have done well above average, and there is no reason to believe it will be any different going forward.
As we have said many times at IFA, investors who engage the services of a financial professional should ensure that he or she is a fiduciary who is legally obligated to act in the client’s best interests at all times. Commissioned salespeople (i.e., stockbrokers) only have to meet a “suitability” standard which is open to broad interpretation. The bottom line is that investments are not something that should be sold like vacuum cleaners. Rather, investors should formulate a long-term passive strategy with the guidance of an investment advisor who receives compensation only from the investor. Hopefully, Mr. I Sell Stocks will someday see it this way too, as have so many of his ex-colleagues who abandoned the brokerage industry to become registered investment advisors.