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By Chris Rowe - Creator: Technical Analysis Millionaire
Want to see a pie that will make you sick?I have a pie chart that shows the breakdown of the Series 65 examination -- the exam one must take in order to become a registered investment advisor. Those are the guys that charge you a percentage of the assets in your account in return for their expertise and professionalism.
Here's the problem...
You read that right. Only 15% of the test is dedicated to Economics and Analysis. And since a passing grade is 72%, you can theoretically get every economics and analysis question wrong and still pass the test and start soliciting customers.
You might notice that 30% of the exam is on "Investment Recommendations and Strategies". This might be hard to believe, but with 17 years of intense investment experience and studying, I am a firm believer that risk management is even more important than market analysis.
But in studying for the exam, I found that the Investment Recommendations and Strategies section hardly even covers risk management and strategies in the sense that I discuss them with our subscribers and students. Instead the study material covers things like:
* What short selling is
* Options contracts (super duper basic)
* Diversification and balancing asset classes (Stocks, Bonds, Cash, etc.)
* The difference between small-cap and large-cap stocks, etc.
* Taxes (the taxable interest rate equivalent to a non-taxable interest bond)
It also discusses account types such as 529 plans, 401k plans, various types of IRAs etc.
Really, throughout the whole book, there's minimal work on fundamental analysis, economics (global or domestic), or technical analysis. To me, that's like studying to become a surgeon and learning how sharp various scalpels are, learning that there are different types of people, learning that some disease is hereditary, and basic things like that.
Most (I'd speculate that nearly all) students of my Technical Analysis Millionaire course are light years ahead of nearly all money managers who have passed this exam, in terms of market analysis and risk management.
LET ME PAUSE HERE. Let me say that there are SOME investment advisors and money managers out there who do a great job and understand the market very well. Of course.
But as you learn more about the markets, in The Tycoon Report or elsewhere, you should call and question your financial professional to see where their head is at. Don't be afraid to set up a conference call with him and a friend or associate who is market savvy if you're not sure how to see if the investment adviser is legit. Because becoming an investment pro is a very easy position to get yourself into whether you have a clue or not.
LET'S CONTINUE...
If you look at how it's structured, it becomes clear why most money managers don't beat the general market averages like the S&P 500. The business is more about raising as much money as possible from customers so they can charge the 1% - 2% on a large amount of money.
Unfortunately, while 90% of the time is spent on raising money and prospecting for new clients, the remaining 10% is spent trying to justify their existence. It becomes a game of smoke and mirrors because they can't necessarily just buy the SPY (which is the ETF that tracks the S&P 500). So they try to come close to matching the market because, after all, if the stocks are down 30% while the market is down 30%, the customer can't be mad.
Sometimes the investment advisors will take on more risk than the S&P 500 and win. Other times they take on more risk than the S&P 500 and lose. And that's fine. But it's important to understand how controlled and intentional the risk was. Did the advisor do this just to be able to say she's doing work of some kind?
It's okay to have a balanced account of liquid assets that is not necessarily trying to "beat the market". Remember, it's not just stocks. It's also bonds, currencies, cash, commodities, real estate, etc. The goal might just be to keep up with inflation.
But if you're looking for outperformance, it may be much harder to find than you think. Most asset managers will tell you that their goal is to beat the market by a few percentage points. The question to ask is, "how?"
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An internationally respected authority on options, 9-year Wall Street veteran, and co-founder of Institute for Individual Investors, Chris Rowe spun out profitable trades for his Trend Rider members for 7 years, ending with his retirement in 2012. While most professionals consider an options trader who is right on 3 of 10 trades to be very good, Chris was right on the majority of his trades! Now, through his weekly "Technical Tuesday" Tycoon Report articles, Chris Rowe helps hundreds of thousands of investors across the globe, demonstrating the benefits they'll realize by taking a dispassionate, business-like approach to both stock and options trading. In his thorough and detailed, yet easy and accessible courses, you'll learn directly from Chris how incredibly easy it is to consistently make money - in bull markets, bear markets and flat markets - when you use a proven system for trading success. |
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