I have a choice of paying:

a) zero brokerage    b) opening an account with zerodha or c) pay about 1.5% brokerage to be with a broker-adviser

The offer of zero of course comes from friends and from brokerage houses which will want a full visibility of all my transactions so that they can copy my transactions. This does make a lot of sense and when we were brokers we would have some traders also on zero brokerage.

I still pay 1.5% brokerage – and must be one of the highest even among retail clients. Does it matter in my portfolio? The answer is NO. Does not matter at all because it is a one time charge – and a lifetime charge. So sometime in the 1990s when I bought Nestle and Gillette I must have paid this kind of brokerage – and recovered it in 1 or 2 years in the form of dividend. It is the aum based charge which hurts, not the one time transaction cost. If I were a share trader this figure would hurt because it is almost impossible to trade successfully with such a huge drag.

Why would I pay a high brokerage and what does it do for me?

First of all when you are predominantly an investor, and a small time trader, the brokerage cost does not matter at all. It gives me a very sensible sounding board. I need it. When I sold Coromandel Fertilizer at 269, I was tempted to buy it back at 255 – but he held my hand (to give you the latest example) because he saw the selling force. So I sit far away from the market, travel a lot, do tons of other things – and my broker has full authority to inform me AFTER he has done the trade. Mind you, he has about 12 people sitting in various terminals and doing transactions – these are our feet on street so to speak. These guys comeback quickly and say ‘looks like there is a lot of FII activity see how Hdfc sellers have queued up’ or ‘this last Thursday market is up at 2pm itself..so at the end there may not be covering, but a lot of selling’. Such feedback is very useful if you are trying to buy shares like Lakshmi Machine Works or Bosch where knowing on which day you can comfortably pick up say 400 shares without breaking a sweat is important. I need a wise head to push me when I am scared and to hold me back when I am over enthusiastic about some company, data or event.

How can one forget Benjamin Graham who wrote “the investor’s chief problem — and even his worst enemy — is likely to be himself.”When Pogo came with the dialog “we found out who is the enemy – its us” I am not sure if he had read Graham’s book!  I hope to help you understand the role a wise coach or broker can play in understanding chaotic markets around you, and the even more dangerous enemy enemy within. For, investing is much like dieting: It is simple, but not easy. Everyone knows what it takes to lose weight. (Eat less, exercise more.) Nothing could be simpler, but few things are harder in a world full of sweets, fries, Indian weddings and resistance to change. Giving up smoking, going for a morning run, going to the gym – are all easy sounding, but difficult to do!

Likewise, creating a portfolio is simple – diversify (Sir John Templeton made money in Japan and other EM), while Buffett stuck to USA. Warren Buffett runs a very complicated multi strategy hedge fund, while George Soros trades far more extensively. The insurance arms help WB obfuscate – you cannot really penetrate too much into Berkshire Hathaway books the way you can see Soros’s books. Sadly like dieting, the temptations for the common investor – ‘free’ online training on currency derivatives – the equivalent of a bar to an alcoholic is likely to distract you for sure! Then there are funds that promise to double in 2 years, TV pundits who give you tips every day – almost every hour on the idiot box. So if there is one thing that my broker has done over the past 37 years is to bolster our self control, and the importance of booking losses early and letting profits run almost indefinitely. And a lot of what I write about is gleaned from my talks with him. His learning is more from meeting millions of wannabe millionaires with the patience of a mosquito. I have paid a lot of brokerage no doubt, but what I have learnt (what you are reading!) has been more than worth it. The greatest Investment writer – original – is still Benjamin Graham. I hope to combine all that in my blog…

So, in my blog, I will seek to write about the wisdom we can get from Graham (remember he was also the teacher to Warren Buffett and Sir John Templeton) with some insights of human behavior. The result, I hope, will be practical advice that can increase your odds of reaching your financial goals. After all, Investing has to be goal based.

If your investing is not goal based – I hope it means that all your goals have been met, and now ‘wealth creation’ is your only goal!

 

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  1. Hi Sir,

    Thanks for sharing your vast life experience.

    Its very difficult for a novice investor find a good broker adviser as yours.

    Any steps or hints to find out needle from haystack?

    Thanks,
    K C Rana

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