In today’s Exponential Investor:
- Who needs a stockbroker anymore?
- Investing on your own
- Where to start out
“Newsletter writers are the future,” a peevish old director told me once, many years ago.
He was sitting inside a booth at an exploration conference. It was day two of the three-day event, and he was over being stuck under the absurdly bright lights.
Once we started chatting about my background, and what brought me to a mining conference, I discovered this grumpy company director was once a younger but much grumpier stockbroker. He cut his teeth at various brokering houses across Australia and London during the Gordon Gekko era, jumping out of the business just before the technology, media and telecommunications (TMT – sometimes called the ‘dotcom’ crash of 2000-02.
Relieved he didn’t have to navigate that market crash with clients, he shifted his attention to the Australian mining sector. A few years later, he landed his first board position at an exploration company. After some careful decisions and a dash of luck, he become highly sought after by other exploration companies all wanting his knowledge to help drive their projects.
Anyway, it seems the grumpy stockbroker-turned-mining mogul and I had a lot in common. Over dinner later that night that I asked him why newsletter writers were so important to the future.
“Stockbrokers are old news,” he told me all those years ago.
“The internet has given investors an abundance of free information if they want to look. Why pay a broker who gets a clip on every part of the trade? They don’t care if you’re making money or not. As long as you’re buying and selling shares, the broker is making money.”
Stockbrokers are old news
Chatting with my new contact reminded me of a book I’d read a few years earlier, called Emergence by futurist Ray Hammond.
The book was written in 2001, though I don’t think I read it until 2016. By then, at least half of what Hammond put forward had come true.
Social media has infiltrated our lives. It’s now a form of communication, not just entertainment.
Thanks to smart gadgets, people track one another, their pets, and daily bodily functions, among other things. Our physical realities are increasingly merging with virtual ones.
Technology giants continue to prevail over the information we see and how we see it, and exert influence over politics. Behind every smiling and friendly corporate marketing campaign is a megalomaniac CEO on the take from a billionaire or two.
I’m not much of tech guru. Maybe all this was obvious to anyone in 2001.
However, one thing that stuck with me from this book was a small and largely insignificant part of the plot.
One of the characters had a special trading program that he used based entirely on his individual investments. The program was designed to scour the internet for information relevant to his holdings and then condense everything it found into bullet-point information just for him and the action he should take.
The same man would then tweak his personal trading algorithm over breakfast, then head out while his algorithm did the investing “work”. This resonated with me because I could see exactly how it would benefit ordinary investors.
The whole description of this in the book at best lasted 40 words. Importantly, the character wasn’t some whiz bang Wall Street type or ex hedge fund manager. He was just an ordinary guy trying to invest using smart software.
The rise of the self-directed investor
The key theme linking the tetchy old stock broker and the futuristic book is the same: the rise of the self-directed investor.
Twenty years ago, my stock broker dining companion saw that the Gordon Gekko days weren’t going to last. And author Hammond understood that people want to take charge of their own investments.
Remember, however, that you don’t want to try and “beat the pros”, but rather use what you know to help you along your investing journey.
You can’t beat the pros anyway. They have incredibly sophisticated tools at their disposal.
But the biggest difference between them and you that they have to report a return on investment in a set time frame. You don’t.
While it’s important to have goals, you don’t have to close out positions just to clean up the books at the end of the financial year.
Nor do you need to make risky investment decisions to justify your position within the investment space.
Another huge benefit is that you can keep your costs extremely low. The experts can’t. You can reduce your expenses to online brokerage charges and a couple of select investment advisory services and perhaps a newspaper subscription or two.
The pros simply can’t bring their costs down to this level. Most companies have multiple data terminals costing tens of thousands of pounds per person per year. All raking in six-figure salaries plus bonuses, with top-of-the-line equipment, and no doubt entire IT, admin and marketing teams behind them.
To boot, professional investing decisions may not line up with your personal financial or ethical goals. Many retail investors want to be part of companies that are working on better technology that leads to cleaner air, sustainable housing or renewable energy, for example. Unless specifically mentioned, hedge funds don’t often have these goals driving their investments.
The point is, you can take charge of your own investments with relative ease these days.
We might not have the sophisticated software yet to ease the process for an individual investor, but there’s plenty of free information to get started.
And when you’re ready for the next step, look there.
Until next time,
Co-Editor, Exponential Investor