investment and trading

Investment and Trading – The Client Ethics


The biggest problem with human beings is that they do more than what they are asked to do? You might wonder how this could be a problem? It can be better explained with an example. Say you are going to a doctor for treatment. The doctor hands out the prescription and asks you to meet him after five days. This is as simple as it can get. You have just got to do a certain thing for a certain period in a certain manner. Isn’t it easy to execute?. But what do you do? You peruse the prescription. Once you reach the drugstore, you try to find from the druggist the use of each drug. If there is a supplement or vitamins in the list, or even if the doctor has provided you with the syrup itself, you skip them and stick to taking just the main medicine( this again is what you consider to be the main medicine). Once you start feeling better, you may fade the dose instantly or even discontinue the medication. You seldom visit the doctor if you are okay by now.

The fate of investment and trading recommendations

The fate of investment and trading recommendations is no better than the above example. It is especially true with day trading advice. The day trading advice is reasonably well structured and akin to a doctor’s prescription. It includes

  • Stock name
  • Trade price (sometimes even a range)
  • The stop
  • Targets (occasionally several targets)

As well as additional instructions on how stops are to be moved and how targets have to be handled. In most cases, the service provider would take adequate care to provide the correct information. The problem starts when a client switches on the second guess mode for these processes. It goes like this. You as a client take a view on the call, run through the list to understand whether the market is bullish or bearish, pick up only calls that agree with your reckoning of the market. You also indulge in choosing stocks based on your likes and dislikes. If you have been asked to make five calls in a day, you as the client select some calls randomly while you ignore others. Followed by this, is the hesitation in the execution of the advise itself. You choose to use your discretion about timing with or without any justification. Next, comes the important element of stop loss. You may apply to stop-loss for some and miss out on many. As far as the target is concerned, it is set aside once profits come in and there is a high urge to exit the market.

Reason for short-term orientation of advisors

Doesn’t it go to show that you lack confidence in the advisor and his analysis! Why do you, then. Have to subscribe to the services? If you intend to do what you want to, are you hiring the services of an advisor only for namesake? Not. But indulgence in the type of activities mentioned above that is quite prevalent is what forces most of the advisors to take a shorter term- oriented approach because they find the client’s actions unreliable. In the advisor’s point of view, he would only want clients to stick to him to ensure continuity of his business. That is why he takes the pain to structure the trading advice. However, as a client, if you are short-term oriented and run your judgment either alongside or over the advice that is given to you by the advisor, you as well as the advisor would get stuck in the web of your own making! The result that unveils is that you do not make money and you blame the advisor for that, while the advisor blames you for your actions which spells dissatisfaction and unsavoury reputation, for the advisory business as a whole, making them seem like a bunch of charlatans who are out there to grab your money. All this despite the clients being the real parasites who need advisors to exist in the market and they keep moving from one advisor to another, however, not willing to change their ways. All this happens because you have low faith in the advisor, that you may feel you are constrained to act in his interest. In the advisor’s point of view, you as a client is fickle in your actions, and he finds it necessary to act in his interest as well. Isn’t it what you call a can of worms.

The solution

Can there be a solution? Of course, there is. It is quite simple too. An advisory service is a business contract that involves two persons. Just as it is the duty of the advisor to fulfil his responsibility by delivering quality work, you must understand that you as a client also have to follow the advice as it is offered. There needs to be an element of trust on both ends.

Similarly, the advisor has to be sensitive to the fact that the client is putting his hard-earned money to work, at risk, at the say-so of the advisor. The client should also understand that the advice he is giving is after ensuring that it would work in achieving your targets. This would help break the loop of distrust and could lead to much better experiences and relationships.

In short, it all boils down to faith and trust- the basic human emotions. Let’s try our best to build it so that our lives, as well as business, can get better.



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