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b"With\\xa0Robert Port, Partner with the Atlanta law firm of\\xa0Gaslowitz Frankel LLC
No Crystal Balls:\\xa0 Recognizing Broker Misconduct
Robert Port is an Atlanta-based lawyer specializing in commercial litigation and fiduciary disputes.\\xa0 He recently wrote an article entitled \\u201cCourtside Seat: Everything I Know About Investing I Learned in Court\\u201d which summarizes lessons learned from decades of representing individuals who've lost money thanks to the misconduct of their investment advisors, insurance agents, and stock brokers.
The first lesson that Port and Steve discuss hinges on the unpredictable nature of markets. The simple truth is that no one has a crystal ball when it comes to forecasting markets or stock prices.\\xa0 For one thing, these prices rise and fall based on news, which is itself unpredictable by definition.\\xa0\\xa0 Statements and insinuations by people pitching their skills and insights\\u2014claiming, for example, that stock XYZ or the S&P 500 will be 20% higher or lower by some date\\u2014ought to raise a major red flag.\\xa0 Port argues that because of this randomness to asset price movements, it is impossible for brokers, fund managers, or financial newsletters to consistently time and beat the market.\\xa0 They might outperform for a year or two, but, eventually, their returns will \\u201crevert to the mean average,\\u201d which will likely be lower than overall market trends, especially after fund and trading fees are extracted.\\xa0 There is more luck than skill in beating the market, Port asserts, citing academic research that backs him up on this point.
Why are so many investors susceptible to the duplicitous claims of those who present themselves as financial wizards who know when and what direction stocks are headed?\\xa0 Naivete or an uncritical willingness to believe, greed, and lack of due diligence may all play into it, but one shouldn't ignore the major advantages that Wall Street and other operatives have when it comes to dazzling people with technical charts and analysis.\\xa0 The arsenal of tactics and sophisticated language used by industry to draw individual investors into making bad decisions often rises to the level of misconduct and can be litigated as such.\\xa0 The investments being peddled may be mutual or hedge funds or stock picks, among others.\\xa0 As Port writes, the lesson here is to \\u201cAvoid actively managed investments. Stock picking and market timing are losers\\u2019 games.\\u201d
Avoid Investment Products And Financial Fraud
Out of the seven lessons Port writes about in \\u201cCourtside Seat\\u201d, Steve asks Robert to elaborate on the fifth: \\u201cBe Leery of Investment Products\\u201d.\\xa0 Port admits that \\u201chis antenna goes way up\\u201d when he hears the phrase \\u201cinvestment product\\u201d or \\u201cinvestment vehicle\\u201d because of his extensive experience working with investors who have gotten entangled in these to disastrous results.\\xa0 Some examples of investment products that can be abused are limited partnerships, real estate investments, investment trusts, annuities, and mortgage-backed securities.\\xa0 For starters, the firms which engineer these products don't always have their clients' best interests at heart.\\xa0 Developed as they often are by MBAs and financial \\u201cquants\\u201d (who make mathematic models), they tend to be highly technical, wrapped in legalese, and opaque to just about anyone trying to understand how they work. Worse, they are often laden with fees and expenses that are not obvious to investors and not properly explained by the brokers that sell them.\\xa0 Professional brokers themselves often don't understand what they're selling either. This kind of complexity should be a warning sign that you are getting in over your head. Port offers a simple rule of thumb: If you can't explain what and why you're investing in to a middle schooler, you probably shouldn't be buying it."