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Readers reviews of Taking Stock

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This is a useful starting point for those who are contemplating opening a brokerage account. It does a very good job of explaining the function, role and services of the full service brokerage industry from the perspective of the broker/client relationship. The book concentrates on how brokerage activity in the secondary market is executed. The secondary market is where there is constant trading of shares that have been issued by companies.


The primary market is the realm of brokerages and large financial institutions. These are the groups that help prepare an unlisted company for successful listing on the stock exchange. This primary market is concerned about methods of raising funds from the public by way of floats, or IPO’s, capital raising, capital reconstructions, merger activity and rights issues. This is often the main source of income for the brokerage, but not for the individual broker.


The primary market is important because this is the key factor in the credibility gap that creates the potential conflict of interest in the brokerage advice given to clients active in the secondary market. This is most commonly described as analysts and brokers actively promoting stocks to clients to buy when they privately think the stock is a ‘dog.’

This is a  major issue, and the changes that are being forced on the US stock broking industry, are quickly passed over in this handbook. The book implies that these conflicts do not really exist in Australia’s well regulated financial system. The implication is incorrect, and the issue is significant. It is unfortunate it is dismissed so readily.


The book is very much in favour of full service brokerage and less enthusiastic about internet or discount brokerage. In the list of questions to ask internet brokers, traders are advised to make sure they can quickly contract their internet brokerage in case something goes wrong. The book suggests this can be difficult, and costly. Readers are not advised to ask the same question of full service brokers. 


The book suggests you should ask internet brokers if they use straight through processing, but the question is apparently not relevant to full service brokerages. Many experienced investors and traders turned to internet brokerage services precisely because full service brokerages were very hard to contact, were slow to execute orders or because the broker did not have immediate access to a  SEATs terminal. There are some interesting case studies in other books showing the dramatic impact on a  million dollar account when a full service broker went to lunch, leaving a sell order unattended.


I found this lack of balance marred the book as an objective guide to finding the right stockbroker. I operate a full service brokerage account and an internet brokerage account and I find I get more ‘service’ from the internet account, including the ability to use stop loss and contingent orders- issues considered relatively unimportant in this guide.   Internet brokers who offer manual finessing of contingent orders – perhaps the best of both worlds – are not included in this guide.


The book acknowledges the challenge of change in the brokerage  industry, but assumes the change is driven by price rather than service delivery. This assumption makes the book a useful starting point, but not a solution when it comes to selecting a suitable broker.



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