Wall Street, Main Street conflict of interest

We just completed the fourth session with a member who is going through the Level 2 process. He has a nice size portfolio which held about 100 securities in it when we started the process.

100 securities!

We compared the performance of SPY, the largest index exchange-traded fund (ETF), to these securities, four at a time, in order. That is, we did no cherry-picking to prove a point.

 

SPY

Over the course of a decade, of the first four securities selected, not a single one equaled the performance of SPY.

Among the other SPY/four-security comparisons, an occasional one did outperform. Microsoft, for example, as you can see in the chart below.

 

SPY

However, if a portfolio has 100 more or less equal-weighted securities, that is, each representing a similar percentage of the portfolio, what possible difference could such a stellar performance by a single security make to the overall portfolio itself?

What possible difference could 100 commissions make to the broker’s income compared to one commission? Follow the link to fiduciary responsibility  and renew your understanding of the way the world of Wall Street works if you have not done so already.

In this and in many similar cases, the broker/advisor did nothing illegal. In fact, one could argue that a large number of stocks is a fine example of diversification. Diversification or diworsification?

In our blogs, we have repeatedly stated that, based on the last decade, a U.S. index Exchange-Traded Fund (ETF) which tracks the S&P 500, held in a tax-advantaged account, has been the investor’s best way for growing savings and is likely to remain so for many years.

We need to be aware of and beware of the Wall Street, Main Street conflict of interest.


The Monday Morning Millionaire Program was designed to offer compressed investment convictions. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this post in less than five minutes. Following and studying the links imbedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

 

 

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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