New Broker: Stocking Picking vs. Mutual Funds

20 replies [Last post]
Brian's picture
Offline
Joined: 2008-10-28

Hey everyone,
I'm a relatively new broker with LPL (7, 63, 65 and working on my 24) and was wondering about stock picking. I've noticed almost all FAs use Mutual Funds to build client portfolios but stocks are my absolute passion. Is just picking good stocks for porfolios too risky now compared to MF selection? Does anyone still use just stocks for a portfolio construction? However, I do know that the possibility of arbitration is a lot higher with equities compared to MFs but I honestely have to say MFs are so bland & boring...but, then again, you are getting a quarterly commission from the MFs.

WealthManager's picture
Offline
Joined: 2006-05-16

I use a sector based portfolio of individual stocks for the bulk of the large cap domestic portion of my larger clients’ portfolios.  This portfolio almost perfectly follows one of the portfolios that ML research puts out.  I then add stop orders or covered calls when appropriate.<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
 
Do you really think that as a new broker that you can pick a better portfolio than a seasoned mutual fund portfolio manager?  When will you be leaving yourself time to go out and gather new assets?
 
--WM

Brian's picture
Offline
Joined: 2008-10-28

Thanks for the quick response. No, theres no way I could pick better stocks than a mutual fund manager. Obviously, for brokerage non-ret. accounts that the client specifically wants to speculate it's ok but for the traditional SAM/brokerage-Ret. acocunt I now see why mutual funds are more appropriate.

smokescreen agent's picture
Joined: 2008-08-19

wow... that was a quick realization, I can't even imagine how many prospects will end up taking you to school. This industry needs more regulation to stop dangerous guys that don't understand fundamentals, this is like 101 stuff I surprised the question was even posted by someone that has their s7.
 
btw- "passion" is something you should be really careful about associating with stock picking or you could set yourself up to look really dumb with a bad pick, and we all have bad picks these days.

B24's picture
B24
Offline
Joined: 2008-07-08

The only time it seems to make sense to use individual stocks is if you can buy enough different stocks to avoid over-concentration or at least minimize non-systemic risks.
 
However, I think it also makes sense that you are following some sort of program, such as a recommended lsit as a core, then maybe adding in a few of your own picks.  But if you stray outside of a firm-recommended or "buy" coverage list, you are opening yourself up to potential liability.  Some firms do not even like you buying stocks they don't cover. 

gregoron's picture
Offline
Joined: 2008-09-18

Not to mention that you'd have to call your clients for each stock you buy or sell in a wrap account.  Would you want to have these conversations all the time?

UNDERMINDED's picture
Offline
Joined: 2008-10-14

MF's may be boring but the diversification can't be beat with individual stocks.  If your client has enough money to sink into that many stocks, make sure they're rooted in some MF's... you'll thank yourself later.

theironhorse's picture
Offline
Joined: 2007-03-03

so you guys don't think someone can have a diversified portfolio with, say, 10-15 different stocks and 5-10 etf's?  i am speaking of a nq account here where taxes matter.  just curious, not saying it is so.

Gaddock's picture
Offline
Joined: 2007-02-23

I rarely use use mutual funds. I'm sure your firm will have a focus list of stocks they recomend. If you client has less than half a million you may consider UIT's. If they only have 100K or less you dont have much choice.

Vin Diesel's picture
Offline
Joined: 2007-04-18

 i think you can distinguish yourself from 90% of reps by building individual stock portfolios for clients. look at martin shirnoff at lehman bros.
but as you're aware it's riskier from a compliance standpoint.

gvf's picture
gvf
Offline
Joined: 2008-07-01

Once again, we stand united.  

Morphius's picture
Offline
Joined: 2007-07-21

If your main objective is to avoid any strategy that is "bland or boring" or one that helps you "stand out" from other advisors, picking individual stocks is certainly a good way to achieve your objective, especially as a new FA.If, however, your objective is to actually help your clients invest prudently towards THEIR long term objectives, a new FA has zero business picking individual stocks.  You don't even know what you don't know yet.Start with this premise: this isn't about you.  It's about the client.  Learn on your own nickel, not other people's.

Gaddock's picture
Offline
Joined: 2007-02-23

"a new FA has zero business picking individual stocks.  You don't even know what you don't know yet."
 
THat's a pretty broad statement since you have ZERO information about the background of the person new to this business. The strategy I've been using has stomped the DS out of the majority of mutual funds out there. You cant be proactive or hedge, short against the box, use options to reduce basis or enter a position via a cash secured put, crutch trade write covered calls or arb. in your run of the mill mutual fund.

Morphius's picture
Offline
Joined: 2007-07-21

Gaddock,Read this post again and tell me this new FA has any business trying to pick stocks for clients:I'm a relatively new broker with LPL (7, 63, 65 and working on my 24)
and was wondering about stock picking. I've noticed almost all FAs
use Mutual Funds to build client portfolios but stocks are my absolute
passion. Is just picking good stocks for porfolios too risky now
compared to MF selection? Does anyone still use just stocks for a
portfolio construction? However, I do know that the possibility of
arbitration is a lot higher with equities compared to MFs but I
honestely have to say MFs are so bland & boring...but, then again,
you are getting a quarterly commission from the MFs.That statement tells me everything I need to know to repeat that he has no business being paid to pick stocks.  Period.As for your strategy that has 'stomped' the majority of mutual funds - that certainly is quite a claim to make, but much harder to substantiate.  What are your returns YTD, 1yr, 3 yr, 5yr, 10 yr?  MPT stats?  Benchmark?  Exactly what percentage of funds did you stomp?

Gaddock's picture
Offline
Joined: 2007-02-23

That statement may very well say that...singular
 
"a new FA has zero business picking individual stocks"...plural.
 
As for the market I've been short. Something a mutual fund cant do.

Morphius's picture
Offline
Joined: 2007-07-21

Gaddock wrote:That statement may very well say that...singular
 
"a new FA has zero business picking individual stocks"...plural.First, Gad, if you're going to quote me do it in context of my entire sentence, in which I am clearly talking directly to one person, the original poster:"If, however, your objective is to actually help your clients invest
prudently towards THEIR long term objectives, a new FA has zero
business picking individual stocks."I was directing my comments to the poster, who is by his own admission a new FA.  Having said that, I am very comfortable with that as a general statement as well: no new FA has any business picking stocks.  If you want to imagine a hypothetical situation in which a Peter Lynch comes out of retirement as a 'new' FA instead of a portfolio manager, fine.  Meanwhile in the real world of new FAs who have no relevant experience I will repeat that they have zero business picking stocks on their own. None.I can't believe that anyone with any experience would seriously try to argue to the contrary.
 
Gaddock wrote:As for the market I've been short. Something a mutual fund cant do.Mutual funds can't short?  Huh?  You must not be looking very hard if you think no funds can go short.  How about the Prudent Bear Fund, or the Leuthold Grizzly Short Fund, or the literally dozens of short/inverse, or even inverse leveraged funds offer by Rydex and ProFunds?  I'm sure there are a number of other examples but that is just off the top of my head.You feeling OK lately Gad?  You sound a little out of sorts.

buyandhold's picture
Offline
Joined: 2008-09-23

Assuming you are passionate about stocks, I think it's a good idea to have 10 to 20 large cap stocks you believe you can hold for a long period of time. Put together a file of those companies and keep an eye on them.You can talk about them to prospects and use them in portfolios when your clients need large caps and feel comfotable with stocks. I would use funds or ETFs for the small or mid-caps.I'm pretty sure anybody on this board could put together a blue chip portfolio that will do fairly well.Just my opinion, but I think individual stocks have tax advantages, cost advantages, and are stickier than mutual funds. You can call a client and discuss a dividend increase or an earning report in a way that you really can't do with a mutual fund. I've ACAT-ed mutual funds, but rarely stock accounts.

Provocative Put's picture
Offline
Joined: 2008-10-14

Stocking picking sounds like elves running around at Christmas stealing from mantle decorations.

Gaddock's picture
Offline
Joined: 2007-02-23

morp,
You and I both know that vast majority of mutual funds can't short. It's in the prospectus as you know. I'm not going to get into a pissing match with you over something that means so little in the big picture. OK? you happy? New FA's have no business introducing a non mutual fund strategy into client accounts. We need to leave such huge tasks to people like you who know what's going on. Ignorance is bliss and my clients are very happy.

Morphius's picture
Offline
Joined: 2007-07-21

Gad,It's hardly a pissing match to point out that there is an important difference between shorting being something that all mutual funds "can't do" and something that the "vast majority" can't do.  Some clearly can and do.  That's just a fact, and a pretty important one.  I think some folks here might like to be aware of that, if they weren't previously.  Apparently you're not one of them.  That's fine with me.I'm glad you're doing well for your clients using whatever approach you choose, Gad.  May it ever be so.

Borker Boy's picture
Offline
Joined: 2006-12-09

Is this guy going to work for LPL as an indy from day one? I'm sure glad he won't be using my money to experiment with as he learns the BASICS of this business.
This is one of the most disturbing threads I ever seen.

Please or Register to post comments.

Industry Newsletters
Investment Category Sponsor Links

 

Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×