Sunday, April 1, 2012

Should I fire my full service broker?

From time to time I review my portfolio performance. With software such as Quicken that is easy to do, although I am leery of computer bugs and erroneous/inconsistent data entries. That is not to say that I do sloppy book keeping. No, far from it, every month I diligently reconcile my Quicken accounts with the actual bank and brokerage statements. But the sheer multitude of transactions as well as the categorical assignment of those transactions does lead to an accumulation of errors over time.

Also, it is difficult to assess the performance of my real estate investments since these are long term investments with a 10+ year time horizon and I have acquired a fair bit during this last down cycle that started in 2007-2008. Not to mention keeping track of rental income for which Quicken is entirely unsuitable.

Thus, let’s focus on stock market performance. To be honest, the last 5 years were very frustrating for investors and most gains scraped together during the volatile early half of this decade were wiped out in the big crash. So how are you to measure how you’re doing and how your investment advisors are doing?

When you read the financial headlines there are always the same investor star names such as Warren You-know-who and Sir John. Also Irvin Michael and Francis Chou are often mentioned as star investors. So let’s compare their performance with ours over these last tough years. This is maybe also a good time to bring up my full service stock broker, the closest thing I have to a financial advisor. Over the years he has been my devil’s advocate and kept me from various stupid moves although that is offset with some less than brilliant moves by him. Also, he oversaw a lot of my oil and gas investments while I am more heavily in financial stocks and real estate stocks plus U.S. industrials using my discount accounts.

But you know what? Quicken told me that over the last five years my full service broker only delivered me a measly 1.93% annual return. Fire the guy! I can do a lot better and safe on the commissions! So what did I do by myself? Eh…. Eu… 1.01% Fire yourself! Go to Francis and Michael!  Eh… Eu… well they may be better but they are charging MERs and operating expenses. They delivered -2.1% and -1.56% respectively. A TSX index fund would have done ‘least worst’ at an exciting 2.25%.

So, my broker (combined with my own incredible wise input J) did best apart from the TSX. But then, the TSX has good, poor and not so poor years. Some years the S&P and Dow do a lot better. Sometimes real estate blows you away. It truly is a matter of diversification and before it goes completely to my broker’s head he probably managed the best segments of the market! (Really?)

I guess, I’ll better hang on to my full service broker a bit longer and of course, I am praying for a return to the good old 1990s. Hmmm, have you seen this year’s stock market performance? A repeat performance may not be so far off, after all.


Figure 1. Five Year Performance ending Feb 29, 2012
Oh, before I forget. Five years ago was March, 2007. If you had sat out the crash you would by now have recovered had you done nothing but holding on to your TSX etf.

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