If you walk into Best Denki or Harvey Norman and ask the salesman whether you need a $3,000 LCD TV, what do you think he will say? He will immediately recommend you the $8,000 50 inch Samsung High Definition LCD TV, and give you 1,001 reasons why you NEED that TV. Right?
I guess the message here is that the salesman cannot tell you whether you NEED a LCD TV. His job is to sell you the TV NOT to determine if you need one.
But our world is a strange place. In so many areas of our lives, esp those related to finance, we ask the salesman whether we NEED something and we expect them to have our interest at heart and tell us the answers. Think about the following questions.
Is it logical to ask the insurance agent what kind of insurance is suitable for you?
Is it logical to ask your broker or his analysts which stock to buy?
Is it logical to ask your private banker how you should manage your wealth?
Is it logical to ask an investment banker whether your co. should do M&A?
In most to these cases, the salesperson, middleman thrives on activity. This is bcos he takes a cut or commission on the transactions that take place. So it is NOT in his interest that he recommend you the best thing. Bcos it will not generate future activity. He needs activity to earn his keep.
The insurance agent wants to revisit you every yr so that he can sell you another policy even though he sold you one last year that would have taken care of your lifetime need. And he will only sell you a life policy or an investment link one even though a term policy makes more sense for you. Bcos the commission on those pdts are much higher.
The analysts change their ratings every 3 mths bcos that's their job. Their job is not to identify the long term winner. Their job is to churn and create lots of buy and sell orders. So it is not in their interest to help investors identify the real 10 baggers (stocks that will rise 10 folds). Even if there are genuine analysts out there who believe they should help investors, the system is in place to discourage them. That's life dear.
Similarly the private bankers cannot help you grow your wealth. Their job is to sell you investment products and earn their keeps. They need to sell new products every yr to hit their annual targets. So naturally they will recommend you to buy this, sell that and buy back what you sold etc year in year out. Even though investments can only generate good return by investing for the LONG TERM.
As for companies, when they reach a stage where organic growth becomes difficult, they seek to do M&As. But the investment bankers they consult to do M&A are at best, well, not much better than the Best Denki salesman. They cannot help to identify which good co.s to buy. Their job is to make deal, not to help the CEOs find bargain M&A. That's why most M&A fails (though they look good on paper).
So how? I am still searching for an answer, but by talking to people who have gone down the same path sometimes help, esp those that have more experience in life and have succeeded (ie. not a bloke lah, but getting advice fr a bloke may still be better than getting advice fr private bankers). People who have bought so many insurance policies and finally know what is really good. People who have talked to so many private bankers and finally know not talking may be the best. And of course, when you have the answers, contributing your answers to this blog will help too!
I guess the message here is that the salesman cannot tell you whether you NEED a LCD TV. His job is to sell you the TV NOT to determine if you need one.
But our world is a strange place. In so many areas of our lives, esp those related to finance, we ask the salesman whether we NEED something and we expect them to have our interest at heart and tell us the answers. Think about the following questions.
Is it logical to ask the insurance agent what kind of insurance is suitable for you?
Is it logical to ask your broker or his analysts which stock to buy?
Is it logical to ask your private banker how you should manage your wealth?
Is it logical to ask an investment banker whether your co. should do M&A?
In most to these cases, the salesperson, middleman thrives on activity. This is bcos he takes a cut or commission on the transactions that take place. So it is NOT in his interest that he recommend you the best thing. Bcos it will not generate future activity. He needs activity to earn his keep.
The insurance agent wants to revisit you every yr so that he can sell you another policy even though he sold you one last year that would have taken care of your lifetime need. And he will only sell you a life policy or an investment link one even though a term policy makes more sense for you. Bcos the commission on those pdts are much higher.
The analysts change their ratings every 3 mths bcos that's their job. Their job is not to identify the long term winner. Their job is to churn and create lots of buy and sell orders. So it is not in their interest to help investors identify the real 10 baggers (stocks that will rise 10 folds). Even if there are genuine analysts out there who believe they should help investors, the system is in place to discourage them. That's life dear.
Similarly the private bankers cannot help you grow your wealth. Their job is to sell you investment products and earn their keeps. They need to sell new products every yr to hit their annual targets. So naturally they will recommend you to buy this, sell that and buy back what you sold etc year in year out. Even though investments can only generate good return by investing for the LONG TERM.
As for companies, when they reach a stage where organic growth becomes difficult, they seek to do M&As. But the investment bankers they consult to do M&A are at best, well, not much better than the Best Denki salesman. They cannot help to identify which good co.s to buy. Their job is to make deal, not to help the CEOs find bargain M&A. That's why most M&A fails (though they look good on paper).
So how? I am still searching for an answer, but by talking to people who have gone down the same path sometimes help, esp those that have more experience in life and have succeeded (ie. not a bloke lah, but getting advice fr a bloke may still be better than getting advice fr private bankers). People who have bought so many insurance policies and finally know what is really good. People who have talked to so many private bankers and finally know not talking may be the best. And of course, when you have the answers, contributing your answers to this blog will help too!
