Chapter 15 - Sources Of Advice And Guidance

People starting out to purchase securities usually look around for competent advice. That is natural enough, but to whom should one turn? A friend who does well in the market may give you some good ideas, but his objectives and viewpoints may differ from yours. Further, he may be a gambler willing and able to assume heavy risks. So friends, even though they may be successful in the market themselves, are not always useful; and sometimes they may be costly when it comes to financial advice.

Some people turn to their lawyers or commercial bankers for investment advice. That may work well in certain cases, but lawyers are not basically trained in investments and their advice might be merely to guide you into securities legal for trust funds a less imaginative and dynamic program than you should have. Commercial bankers dislike giving market advice to depositors, and when they do give it, they may recommend a program of high-grade bonds, too inflexible for your needs.

Investment Dealers and Brokers

Investment dealers are those who, in many cases, buy securities for their own account and resell them to you. They are like any other merchants they buy for resale at a profit. Naturally, it is to their interest to sell you securities that work out well, as in that way you are likely to remain a steady and satisfied customer. The securities offered may be new issues, or ones which have long been on the market. Each year there are dozens of attractive new issues underwritten and publicly sold by investment dealers (as well as brokers). In recent years such stocks as Ford Motor Co., Revlon, Upjohn Co., Campbell Soup, etc., were publicly offered for the first time in this manner. A reputable investment dealer can help to acquire sound securities and often place your fund in attractive new issues.

The Broker and Your Order

Although there is a considerable mingling of functions between dealers and brokers, the broker operates essentially on an entirely different basis. He does not (usually) sell you securities that he owns but rather acts as your agent. He will execute your order to buy or sell securities in any market, listed or over-the-counter, and he will charge you a commission on each transaction. The commission rates on all major exchanges are fixed; and they vary according to the price range of the stock you buy and the regulations of each exchange. Commissions charged by a broker for executing orders over-the-counter are usually on a basis similar to that charged for listed transactions.

Brokerage companies usually have extensive research and investment analysis facilities. They, like the investment dealers, realize that just handling your business is not enough. If they are going to keep you as a client, they must help you acquire sound income-producing and profit-making securities. Your broker can be a valuable ally in achieving good results in securities. He not only can execute orders but can help you in planning your list. He may also underwrite securities (new or old) or be a member of an underwriting or selling group.

Other Sources of Information and Advice

To make sound investment decisions and build up a good list of security holdings, you must keep informed. Read a newspaper with a good financial section. The Wall Street Journal is, of course, excellent. There are periodicals of great value, too. The Commercial and Financial Chronicle, Forbes Magazine, Barrons, The Financial World, and The Magazine of Wall Street provide stores of information together with analysis of industries, individual securities, and market trends.

More expensive and extensive than these are the financial services such as Standard & Poor's, Moody's, Fitch's, Babson's, and United Business Service, plus a whole series of organizations offering weekly or monthly market letters. All of these are useful reservoirs of financial facts and provide professional advice in varying degrees of depth and excellence. They aim to keep you informed about trends in the over-all economy as well as about current developments and prospects in specific industries and issues.

Investment Counsel and Custody

Some people prefer to delegate in part or full this whole business of investment decision and management. If that is what you prefer, there are two or three ways you can do it. Some brokerage firms have an advisory service. They will, on your instruction, make all decisions to buy and sell and hold the securities for you. Many people handle their investment thus, either placing entire reliance on the broker or conferring with him on each particular investment decision to buy or sell.

Many commercial banks and trust companies have departments not only for custody of securities but for supervision and management of portfolios as well. There are standard charges for this service (around %% of the principal amount of securities under supervision). The advantage of this arrangement is the client's complete freedom from decision and detail. All buying and selling, collection of income, and accounting reports are completely attended to by the bank. Banks in handling such accounts will usually lean on the side of conservatism in their selection of clients' securities.

Finally, there are private investment counsel firms which, also on a fee basis, provide total guidance and management of investment accounts. They offer professional services in investment management. They do not buy or sell securities but will handle such orders for your account, through the brokerage firm you may designate.

The purpose of this chapter was to stress the importance of either being well-informed on investment matters yourself or handling your investments through agencies that specialize in the knowledge and techniques of the securities market.

Resume

1. If you're going to make investments, consult people who are competent to help you.

2. Brokers and investment dealers provide invaluable services.

3. Many banks and brokerage houses provide complete safekeeping and investment management services.

4. If you want to keep informed, read regularly several of the leading financial publications; and you may wish to subscribe to a high-grade financial service.

5. Investment counsel perform in a professional manner but make their primary appeal to the larger ($100,000 and over) investment accounts.

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