A piece of advice: cut losses, run profits

It seems obvious, but in practice many people do exactly the opposite

Passengers on the cruise ship "Private Investor" have a motley crew of stockbrokers to look after them. Those travelling steerage are served by the cabin boys and girls who will just do what they are told and are not able to offer any helpful advice, no matter how choppy the seas get. In the trade these young folk are known as execution-onlys and they take the approach that if the passengers get seasick they only have themselves to blame.

Passengers on the cruise ship "Private Investor" have a motley crew of stockbrokers to look after them. Those travelling steerage are served by the cabin boys and girls who will just do what they are told and are not able to offer any helpful advice, no matter how choppy the seas get. In the trade these young folk are known as execution-onlys and they take the approach that if the passengers get seasick they only have themselves to blame.

Should you feel the need of some guidance there are junior officers, called advisers, who will offer you their professional assistance based on years of experience. They will expect a reasonable reward but in return they will suggest various ports to visit and attractions to see. But at the end of the day you must make the decisions.

Those passengers who can afford first class cabins are able to employ the services of a dedicated senior officer. He will look after all aspects of your journey for you, even to the extent of assessing the weather and telling you whether to stay in bed or not. This is the discretionary broker.

"You get what you pay for" is a particularly apposite cliché when it comes to stockbrokers. There's no doubt execution-only dealing has taken the sting out of brokers' commissions but its popularity makes me uneasy. It appeals to new investors who want to keep costs to a minimum but surely such players need guidance? It is a worry I discussed with Chris Ring, managing director of NatWest Stockbrokers. His views should be relatively independent because his firm offers execution-only, advisory and discretionary brokerage.

"It isn't solely about experience," he said. "I believe it is about enthusiasm, about people wanting to make their own decisions. Investing in equities is a great hobby and there's a real thrill in picking winners for yourself. As long as you have done your research thoroughly there's nothing wrong with going it alone as far as the final decision is concerned.

"Of course advisory brokers have a role to play, particularly for people who have not got the time or the inclination to do their own research. They can bring an added dimension and opinion to investments you have chosen and are also a useful sounding board when you want to discuss the risk weighting of your portfolio."

In practice, Chris said, most investors give discretion to professionals anyway because they usually have a certain amount of their funds in unit trusts or investment trusts. So don't be shy about giving discretion on your total portfolio to a stockbroker or investment manager.

I tempted the stockbroker into a spot of crystal ball gazing. What sectors did he fancy would do well in the next three to five years? "The world is obsessed with communication and health. It is not rocket science to predict that information technology, telecoms, healthcare and pharmaceuticals will do well," he said. "They are the sectors of today and tomorrow. Specifically, I would pick Marconi, Glaxo, Cable and Wireless and Vodafone."

These are all big boys and I wondered whether he had a fledgling stock tip to pass on. "In a word, no," he said. "There are so many small companies, many of which are high-risk investments, that I think that the safest and more than likely the most rewarding route would be to pick a biotech or technology fund managed by the likes of Finsbury."

Our conversation turned to Europe. I pointed out that UK private investors were keen to diminish the risk of a falling pound and to take advantage of emerging countries across the Channel by buying shares over there. The drawbacks seem to be high costs, research difficulties and a convoluted broking system. Chris agrees but is confident that matters will improve quickly.

"There are exciting opportunities in Europe," he said. "Demand will dictate that soon we will be able to buy and sell as easily as we do on the home market, but meanwhile I would advise taking a stake via the specialist funds." He particularly likes Henderson European Micro Trust, which concentrates on smaller European companies. Launched last month at 100p (this week's price 102p), it selects companies from the sub-£250m area and is able to invest up to 20 per cent of the fund in unlisted companies. Among the trusts devoted to larger companies Chris suggests you look at Gartmore European.

Chris had a final piece of advice for investors: "Cut losses, run profits. It seems obvious, but in practice many people do exactly the opposite. They sell their winners, hold on to their losers, and kid themselves that they are making a profit. Mention the losers and they retort: 'I'm hanging on to them until the price comes back.' How naïve can you get?"

***

Ever since I read, a couple of weeks ago, about a 25-year-old futures trader who panicked and lost £750,000 in an afternoon as he chased the dragon and tried to recoup his losses, the story has been worrying me. Eventually he fled from his desk and rushed out of the building. He was prosecuted and sentenced to three years' jail.

If those are the facts, then the law is an ass and the real culprit in this sorry tale has got off scot-free. In a market where fortunes can be made and lost in the twinkling of an eye, how can a respected City firm have a trading system in place which is not supervised instantaneously? Whoever gave the youngster the means to trade hundreds of thousands of pounds in this way deserves the prison sentence. The young man in question should have counselling and be banished from a City desk until he has undergone proper training.

terry.bond@hemscott.net

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence