Advisory brokers
Advisory brokers -- a moveable feast
If you have lost heavily in recent markets, you may be tempted to use an advisory broker. Some such brokers are incredibly useful. They will hold your hand when markets are in turmoil, and will give ethical, sensible recommendations tailored to your needs. If you find such an advisory broker, hang onto him. This is rarer than you might think.
As a rule, the smaller a player you are, the less easy it is to find a good broker. The best brokers for small clients often operate in the provinces, rather than London. Here they have less overheads and a more leisurely working life.
Avoid the dud advisory brokers
The most accessible brokers are self-employed, splitting commissions earned with their firm. Some such brokers are reliable, but many are ignorant about the stock market. They may have been trained in dubious sales techniques at licensed dealers in securities, the downmarket alternative to stockbrokers that had mostly died out by the early 90s.
Keep suspicious
Always have a reason for buying a stock
Never buy a stock unless you have thought about it first and have a reason for buying. If your broker pitches you, put down the phone for 20 minutes, and consider. Do your own research on fundamentals, and do not be afraid to ask your advisory broker awkward questions. Look for cash flow, profits and a track record – without too much creative accounting to smooth the edges.
Avoid the pump-and-dump
The less scrupulous penny share dealers operate the pump-and-dump. The promoters buy their own stock cheaply through a nominee account from a perhaps respectable name in the City that wants out. Their professional sales teams then offload the vast bulk of this stock to private investors, and the price soars. Suddenly the promoters will sell their holdings, and everybody rushes to follow suit, too late. Avoid.
If you buy penny shares, stay in the driving seat
If you must dabble in penny shares, use only brokers from UK regulated firms. Choose what you buy and when, and don't let the City manipulators make the choice for you. Avoid buying shares that are not traded on the Main Market or the Alternative Investment Market, unless you have specialist knowledge or are a gambler. Do not rely on the tip sheets.
Essential further reading
If you want to find out more about how to select an online stockbroker, you must read The Complete Guide to Online Stock Market Investing, by Alexander Davidson, published by Kogan Page.
More general advice on stockbroker selection is available in How to Win in a Volatile Stock Market, by Alexander Davidson, published by Kogan Page.
To find out more about how to beat the City at its own game and select winning shares, buy Stock Market Rollercoaster, by Alexander Davidson, published by John Wiley. This dynamic novel is based on the author's own experience of stockbroking and investment banking. It will very likely prove the best investment that you ever made.
