I recall the episode of Rumpole of The Bailey titled Rumpole And The Barrow Boy, where a
financier blames a crisis on stockbrokers who think like fruit vendors. An
unfair comparison, I believe, as the average stockbroker isn’t much different
from a fruit vendor; he has to weed out
the bad apples, advise customers on which ones to buy, take stick if his apples
are wormy, and watch out for the regulators. The “barrow boy” approach to
finance isn’t that bad, compared to the “cowboy” approach, which carries great
risk. When you charge in like the cavalry, you lose focus on your target, and
that’s no good.
Thomas C. Howard
stresses financial planning over investment, with calm and emotional restraint.
Too often the broker/advisor goes for risky stocks rather than slow-growth
securities, sometimes for the sheer thrill. He does the $100 bill test, to see
if a trainee will wait patiently for $100 or gamble $20. Many of them gamble
the smaller amount rather than sit like a hen for the greater.
Behavioral
Portfolio Management discusses how the financial advisor can reduce risk by
diversifying the account with stocks and/or bonds. One method is called “bubble
wrap,” where the majority of the securities are stable, with a minority of
riskier ones. He also teaches that risk and volatility are not synonymous; a
real estate company can take a loss, but if the buildings are in a secure,
proven area, the drop isn’t likely to last. In a place like Detroit, a drop isn’t
likely to recover.
This book gives
good, conservative advice, and does not promote risky cowboy-like
investment. I recommend it to anyone
getting into finance, or looking to invest for their retirement.
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