It was about 12 years ago that I invested $20,000 with a stockbroker friend of mine with the instructions: "Invest the money where you feel best." This stockbroker was no "slouch." He's been a stockbroker for about 30 years and is a branch manager at his office. He also has all the fancy designations associated with being a "high-end" broker, including senior Vice-President. Why would I entrust $20,000 to a stockbroker as opposed to going it alone? To prove a point. In fact, this was a test. I knew I would do much better investing the money myself. But I wanted this hot-shot broker to prove me wrong, do me better, and teach me a lesson on how it's done. Well, it never happened. It was March 1999 and stocks were near record highs. Before I invested the $20,000, I asked the broker where he would put the money considering stocks were trading so high. His answer was that, over the long term, say 10 years, stock will always move higher. (I wanted to put the $20,000 into a Gold Mutual Fund, but the broker thought I was crazy.) With carte blanche, the broker invested my money back in 1999 mostly in mutual funds with U.S. equities, a U.S. index fund, and a global equity fund (this broker was big on foreign funds at the time). So how did he do? I looked at my statement 10 years later and the $20,000 the broker invested for me was now worth $20,008.44. The broker totally blew it. When I did this "test," I was thinking about my PROFIT CONFIDENTIAL readers and the lessons that they could learn from it. Here are those three lessons: --- Stockbrokers who work at large brokerages are not the Smartest Investors. If they were, they would be making so much money investing their own funds they wouldn't need the commissions they make off selling stock to investors. --- Stocks do not go always go up in the long term. To me, 10 years is long-term. --- You can't just buy a group of mutual funds and leave them for 10 years without adjusting your portfolio for the changing economic times. This broker would have been smarter to take my $20,000 in 1999, invest it in a money market fundâ€"because stocks were very expensive in 1999â€"and then re-invest the money into equity funds once stocks came down in 2001 and 2002. He would have also made more money himself by moving the $20,000 in and out of different mutual funds and stocks as the economic times changed around us, as opposed to just having the money sit there. I guess I made $8.44 off of $20,000 over 10 years. But if you take inflation into account, this broker really put me in the hole. Maybe that's why 12 years ago was the last time I ever trusted a stockbroker with my money, especially a big-shot stockbroker with all the big credentials. Michael’s Personal Notes: It came flashing across my e-mail inbox this past Tuesdayâ€a special alert from CNN Breaking News†â€Gold reaches $1,500 an ounce for the first time,†claimed the alert. Well, CNN, get used to it. I expect to get at least 10 more e-mails like this from you, every time the yellow metal hits a new, big even number, like $1,600, $1,700, $1,800 and on all the way until $2,500, at which point the headline should read: â€Gold reaches $2,500 an ounce matching its inflation-adjusted price of $850.00 reached back on January 21, 1980.†Many of my readers are either celebrating Easter or Passover this week. Have safe and happy holidays. I know I’ll look forward to spending the next few days with family and friendsâ€and I wish you the same. Where the Market Stands; Where it’s Headed: It’s hard to believe. In early 2009, it looked like the financial world was falling apart. But here we are, so many months later and the stock market is close to doubling from its low of March 9, 2009, when the Dow Jones Industrial Average touched 6,440 intraday. Unfortunately, I don’t think we are in a new bull market. In fact, I’ve been writing just the opposite since then: We are in a bear market rally that will take stock prices higher. And that’s exactly what’s been happening. Enjoy the bear market rally while it lasts! What He Said:
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