Your Broker As A Cheat (Part 2)

There are many reasons why your broker would recommend a stock to you.  

However, the reasons may not necessarily conclude that you are making a prudent long term or a short term investment.  In fact the recommendation may come to you only because you have an account with the broker and that you have cash – and that you are financially dense.

Your broker may have invested in the stock for his other clients, or for his family or for herself.  The stock may not be performing well.  The broker is now experiencing stress and cannot decide her current condition.  The stock is not performing and the broker’s reputation is on the line.  Our internal state of harmony is challenged if she is to conclude that it was a bad stock.

It is at this moment that you ask your broker about a good stock and pop!  She just names the stock that she is stuck in.  Your investment in this stock not only induces conformity in your behaviour – the broker also feels good that money is pouring into the stock.  She now does not have to think that she could be a certified dud.

Your broker could be hand in glove with the main broker at the exchange and there could be a mutual understanding between them to encourage retail participation in the stock thus allowing the company and its operators to offload the stock.

Now, depending on the stock, you may book your losses at some 30% to 40% loss.  This is the time the company and its operators pick up the stock again and look around for fresh idiots to fall prey to the game.

Some stocks in this category are Prakash Industries Ltd, Shree Precoated Steel Limited, Sturdy Industries, India Lease Dev, Shree Rayalseema, Anus Lab, Zyden, Arvind Remedies, Karuturi Global, Alok Ind, Assam Co  and similar certified junk.

Please note that such a game plan is first initiated by a good looking “Research” Report or some model portfolio gibberish.  Your broker will produce such a report before you in order to add authenticity to an otherwise junk proposal.  If you are greedy, you are game.

A giver is a person who gives, a donor is a person who donates and a broker is a person who gets you broke!

In dealing with brokers, it may pay to heed to the words of Alexander Pope:

Be wise,

Be discreet,

But mark that point,

Where sense and dullness meet.

Happy Investing !

Copyright – Nitesh Kotecha