Exclusive Market Report from Mohamed Arif:

Author: Bill Kraft Copyright 2007, Makin' Hay, Inc., All Rights Reserved

The common thread was that brokers lost them and/or their families' money -- sometimes in large doses. These losses, for the most part, had nothing to do with mistakes; they had to do with regular bad trading. One subscriber, for example, turned his money over to a brokerage which sold his whole portfolio of stock and invested in issues that fell dramatically. Here, the problem is opening a discretionary account. Most retail investors dutifully sign the agreements presented by the broker when the account is opened and fail to realize that they are giving the broker discretion to trade their account. In the old days, and to a lesser extent, today, that led to churning. Churning is a device whereby the unscrupulous broker trades very frequently in order to gain commissions for himself. I make it clear to my broker, in writing, that they do not have the authority to trade in my account unless there is some margin issue that must be satisfied. No one cares more about your money than you, so you should be making the ultimate decisions.

One subscriber suggested that the only safe way to trade is by avoiding the live broker and using an online broker where there is great ease of trading. I agree that online brokers can be a great way to go PROVIDED the investor is knowledgeable. The knowledge must come first if there is going to be any serious chance of success and sometimes that knowledge can be gained with the assistance of a good, honest broker. It can take some effort to find the right live broker, but your money is important and the effort worthwhile. Most people spend more time deciding what brand of refrigerator to buy for $500 or $1000 or $1500 than they do searching out a broker to whom they are going to entrust their life savings. What kind of sense does that make?

Another subscriber pointed out that brokers are nothing but salesmen who sell the stocks in the brokerage inventory. Of course, that statement is too global, but there are many who fall directly into that category. Firms have literally had (and undoubtedly some still do) a "stock of the day" that their brokers are supposed to push to existing and cold call clients. Avoid those guys like the plague. The fact is, there are some good brokers out there. I have one. The good ones won't push you to buy. They will answer questions, get information, help you get good fills and even help educate you. They will have time for you and won't try to fast talk you into something for their benefit alone. They will help you get good fills. I suggest you interview live brokers either by phone or in person and find out what they are doing in their own portfolios; learn what strategies they are using in their own accounts and decide whether that is a strategy for you. If they say they only buy and hold, ask them: Until when? Death is not the right answer.