When I was going through some compilation of some old articles, I came across this article written last year: When Stock Tips Go Bad, Is the Broker to Blame?
Here is an incredible article about a guy who was initially making tons of money in the stock market via the advice of his broker FRIEND. But when things started going wrong and the the stock market turned, his broker friend gave him a couple of advice, which turned out to be dead wrong. According to his broker friend, he was told not to worry about the falling market. Markets go back up he was told.
But sadly the market was not too kind on him. And the market failed to go back up. Hence, he decided to file a case. Truly incredible!
Here is a snippet from the article:
- WHO is responsible when an investor loses money in the market? In the old days, before the Internet bubble burst, the answer was pretty clear. Absent egregious fraud on the part of the broker, an investor had to accept that investing in the market involved risk.
In the wake of the technology crash, it appeared as if those standards might change. The New York State attorney general's office found that analysts - those in financial firms responsible for researching the health of the companies whose stock their investors buy - routinely gave positive recommendations on companies that they disparaged in private.
Often, the financial firms where the analysts worked were seeking the banking business of those same companies, and the public recommendations were seen as a way to curry favor. One Merrill analyst, for example, publicly recommended an Internet darling called InfoSpace even as he privately called the stock a "powder keg" or worse.
In a settlement with the Securities and Exchange Commission in April 2003, Merrill Lynch and other big firms agreed to pay $1 billion in fines and put $433 million into a fund to compensate some of their clients.
That's a tiny fraction of the trillions of dollars that investors lost in the tech crash. After the settlements, law firms rushed to file class-action suits against brokerage firms on investors' behalf. The courts, however, were less favorable to the claims than they had hoped. One federal judge, dismissing a class-action lawsuit against Merrill Lynch and other brokerage firms, denounced plaintiffs as "speculators" who were trying to "twist federal securities laws into a scheme of cost-free speculators' insurance."
Far from generating a mass of class-action lawsuits, disputes between clients and their brokers - including Mr. Murdock's with Merrill Lynch - have largely been decided in securities arbitration, an independent dispute-resolution system set up by the industry to apportion responsibility in these disputes. Investors agree to submit to arbitration when they open an account.
The reports of conflicts in investment bank research have turned out to be largely irrelevant in arbitration: few clients can show convincingly that they regularly read the brokerage firms' research reports, and fewer still that they actually relied on them to make their investment choices.
Ultimately, however, it is the brokers' advice that arbitrations like Mr. Murdock's are really about. Mr. Murdock said that as the market was falling, his friends thought he was crazy to continue taking Mr. Harris's advice. But for Mr. Murdock, the point of having a financial adviser is that his advice should be better than his friends'.
.... Advice is the essence of why clients like Mr. Murdock go to full-service brokers. But one thing that is not commonly argued in arbitration is the very question that sends people like Mr. Murdock into arbitration in the first place: whether the broker's stock-picking advice was, in fact, good or bad. Even in the post-bubble world, that can be a hard sell to arbitration panels.
- Merrill says that this was a case of an investor who was lucky that an arbitration panel compensated him for losses that were his own fault. The firm says Mr. Murdock missed several chances to diversify into safe municipal bonds. "Mr. Murdock identified himself as an 'aggressive investor' and lived up to it," said Mark Herr, a Merrill spokesman. That Mr. Murdock got any award at all, he added, was "a case of catching lightning in a bottle."
How? The bugger was an 'aggressive investor'. And he lost money. Yet he laid the blame on the bad advice given to him by his broker FRIEND. And best of all, the bugger ' was perplexed about why, having won, he didn't get a bigger award. Not surprisingly, Mr. Murdock says his friendship with Mr. Harris is over.
But how sure are we which side of the story is correct?
Are all brokers really bad? Or perhaps we are witnessing the case of some bad customer? Customers who should be blamed for their own folly for being too reckless in the share market!
For instance in this other article, Putting stock in brokers' pasts , the article tells the tale in which a 53-year-old widow was 'seething with anger toward a Dallas stockbroker whom she blames for losing more than $700,000 that her husband left her when he died'.
- In 2001, Ms. Newfield accused Mr. Cowle of losing her money in unsuitable high-tech stocks and of making unauthorized, rapid-fire trades in her account to generate commissions and other fees that topped $600,000.
“It has been a few years now, and not a day goes by that I don’t think about how this man ruined my life,” Ms. Newfield said earlier this year. “I don’t trust anyone anymore.”
That was the customer version of the story.
And this is what the broker had to say.
- Mr. Cowle, who points to his successes with thousands of clients over 20-plus years as a broker, replied in kind. He said Ms. Newfield ordered all the trading and withdrew money from the account to buy furs and Tiffany lamps.
“I was a constant reminder to her that she was spending money like a drunken sailor,” he said. “She laughed and said she would make it back in the market. I warned her.”
Well, according to article, 'What she didn’t know was that in the preceding three years Mr. Cowle had been the subject of his second and third investor complaints, which alleged that he bought stocks without permission, according to records from brokerage regulator NASD.'
Ahh ... the broker had a questionable past history. Perhaps she might have done her money justice if she did some homework before trusting her money with the broker.
Which reminds me of this story last year: Angry shareholders at Fountain View AGM
- Some shareholders told reporters the board refused to comment on the arrest of substantial shareholder Datuk Chin Chan Leong who is also Yam’s spouse; or provide an explanation for the company's share price performance and why Yam had sold off a bulk of her interest in the company just before its share price plunged.
“It was very tense inside (the AGM). Directors told us to limit our questions to matters regarding specified resolutions or the company’s performance last year. They left us in the dark about the fate of our investments, said one shareholder who walked out in frustration halfway into the meeting that ended in just under an hour.
Back last year, I wrote the following notes in my old forum.
- In such a situation, of course it was very clear that Fountain was simply playing some real nasty funky music from day one. And if one had taken into consideration the business fundamentals of Fountain (ps Fountain reported losses in their latest earnings) , then logically one should never had invested in it from day one. So crudely said, the shareholder needs to realise that this is the sharemarket and nobody forces you to make such a simply rotten and silly investment. And at the end of the day, it was the shareholders' own decision to buy this share and I think it is high time they pay the lesson for their folly and greed in making such a poor investment.
And the most amazing thing is.... why are they STILL staying invested in a such a company? Shouldn't they have done the logical and sensible thing, admit their folly in their investment mistake and move on by dumping the share? By not admitting and continue to be invested in such a company only give such rotten owners a second or even a third chance to cheat them. Make sense?
LOL!!!
It's no wonder why they say, they will always exist folks who are dying to be suckered in the sharemarket!
Have I changed my view today?
Nope.
On one hand, I reckon those buggers involved in the rigging of the share price should be punished heavily. On the other hand, I do reckon that buyers of such shares should be responsible to themselves. They have no one to blame if they make any reckless investment in the sharemarket.
No one has any divine right to win money in the share market.
The share market owes no one anything!
Which brings me to dear old Iris.
Well, I do not want to say much about Iris except that I came across a good blog posting on it: An Open Letter To Securities Commission
- Some proposed rules for designating a security:
1) A stock should be designated if it has hit the 30% limit up twice out of three trading sessions. In KLSE, a stock can only move up 30% in one trading session. The rule would not apply to shares whose prices are below 30 sen. The rules would also not apply to the first 3 trading days of an IPO. If a share already moves up two times in limit up, the share price effectively could be:
1.3 x 1.3 = 69% gain.
Anything more than that within 2 trading days is certainly excessive.
2) A stock should be designated if it has risen by more than 100% in 5 trading days. This should be obvious.
3) A stock should be designated if it has risen by 200% in a month. Again, pretty obvious - a stock that has tripled within a month means too much inherent speculation is still apparent.
4) Above and beyond those 3 rules above, the SC would then have the liberty to step in. This is to prevent syndicates who try to "navigate around the above rules".
5) To be released from designation, it is after a fixed 2 week period.
Rationale:
a) These rules will be administered strictly, hence investors can be assured of the prevailing rules and goalposts (and not have these bloody goalposts shifted every now and then, sometimes not even knowing if the goalposts even exist, not knowing how much is excessive speculation each time in the opinion of the SC).
b) If the stock really has gained enormously in fundamentals (projects, prospects or profitability), a designation WOULD NOT and SHOULD NOT stop genuine buying. The rules are meant to rein in excessive speculation.
c) The proposed rules have already given ample room for stocks to move up. The lifting of designation is also fixed, so again no room for hanky panky.
d) Removes monitoring by SC, it is an automatic designation, no room for questionable practices. The SC would only step in if certain companies try to navigate above and beyond the proposed rules.
If we were to implement these rules, Iris Corp would have been designated a long time back. Investors would have known the price levels to avoid entering as they know Iris would have been designated if they bought close to certain price levels. The benefits of knowing when a stock will be designated is too high, .... even to get the SC to delay designation by one trading session would yield an enormous edge for those who knew. That suspicion has to be eliminated completely.
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