Professional Advisers: Pray as you earn?

"Peace of mind" investing is out. Control is in.


By Adam Cohen, December 13, 2010
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A stockbroker and rabbi arrive in heaven, where they are met by the angel Gabriel. The broker receives a silk robe and golden staff, the rabbi a nylon robe and wooden stick.

The rabbi says to Gabriel: "I don't want to quibble, but why does the broker seem to get preferential treatment? I served God all my life."

Gabriel answers: "In heaven, we work on performance. While you spoke, your congregants slept. While he worked, his clients prayed."

Over the past 10 years, stock markets have fallen approximately 10 per cent. During this period, professional fund managers and stockbrokers have struggled even more, with an estimated two-thirds to three-quarters of all funds having under-performed the market.

Fewer than 10 per cent of private individuals profit from trading. The reason? They don’t know how to trade

Meanwhile, most bonds and savings accounts are losing value in real terms: inflation is higher than yields (compare retail price inflation of 4.7 per cent to a savings account of 2.9 per cent). And the idea that property prices always rise is, thankfully, now dead.

"Peace of mind" investing is out. Control is in. It is no wonder that growing numbers of private investors are looking for new ways to manage their money.

One of the most popular routes is to trade. Private investors can actively trade shares, indices, currencies and commodities like gold, as well as more complex derivatives. They can profit when markets fall as well as rise and successful traders can generate five per cent or more a month, spending as little as an hour a week researching and executing their trades.

It is no wonder that over the past five years, execution-only brokers and spread-betting firms have soared in the public consciousness, promising to bring them easy access and quick wins.

New firms are opening almost every month and estimates suggest there are more than 100,000 private spread-betting clients.

Each month, thousands will close their accounts disappointedly while thousands more will open in hopeful anticipation of the riches ahead.

For while these firms offer their clients easy access to the markets, they can provide only limited support to them.

In fact, it is estimated that fewer than 10 per cent of private individuals profit from trading. The reason? They don't know how to trade.

The good news is that aspiring traders can learn the skills and disciplines needed to succeed.

The only way to learn is from a successful trader, whose time will come at a premium.

But the cost of trading without knowledge and expertise is invariably far greater. And the benefit will be tremendous.

Except to stockbrokers, who might opt instead to go to rabbinical school.

Adam Cohen is chief executive at Tradenet, 020 7002 1669

    Last updated: 12:01pm, December 13 2010