Investments: No Experience Necessary

How would you like to earn $80,000 a year in the stock market no matter which way the market goes? Well, you can, and you don't even need a high school diploma to get started.

The secret? Become a stockbroker! Believe it or not, according to one authority, selling stocks is the second highest paying profession in the United States (M.D.s are first). Today people from all walks of life are walking into Merrill Lynch and signing up. There are nearly 300,000 registered stockbrokers and 430 brokerage firms in the United States. Interestingly, over 25 percent of new brokers are women, who are taking advantage of easy entry into this previously "all male" profession.

One sign of the times is a new book called No Experience Necessary: Make $100,000 as a Stockbroker, by former Merrill Lynch broker Bruce Eaton (Simon & Schuster, 1230 Ave. of the Americas, New York, NY 10020). It's 126 pages of salesmanship for $14.95. When I took a copy into a brokerage office, all the brokers laughed and admitted there's a lot of truth to the title.

Experience is not a prerequisite to becoming a broker, but knowledge is. You have to take a six-hour test, known as the Series 7 exam, administered by the National Association of Securities Dealers and you have to be sponsored by a brokerage house. The test isn't easy; 30 percent fail the first time. Most prospective brokers take a crash course first. All of this takes a couple months, and once you pass the exam, you become an official "registered representative."

Incidentally, your first official act as a broker is not a pleasant one: you have to go down to the local police station to be fingerprinted. You see, the fact that "no experience is necessary" tempts a lot of con artists into this business. To restrict convicted felons from becoming stockbrokers, the Securities and Exchange Commission started requiring fingerprints several years ago.

Working as a stockbroker is not as easy as Bruce Eaton suggests. He fails to mention that 50 percent of all new brokers quit after a year, unable to handle the ups-and-downs on Wall Street, long hours, search for customers, client handholding, etc. It takes a special breed to make $80,000 a year.

Those of you who don't want to be stockbrokers but think you can make more than $80,000 trading your own account can still profit from a few tips about dealing with the brokers.

First, use a discount broker if you make your own investment decisions. They don't call you, you call them. They don't give orders, they take orders. Because discount brokers are paid by salary rather than commission, they gain no advantage in advising you to buy or sell. In fact, most discount brokers don't offer advice at all. And commissions are much lower than with full service brokers.

Second, be cautious in dealing with full service brokerage houses, such as Merrill Lynch, E.F. Hutton, Dean Witter, and Shearson. Conflicts of interest abound. Many brokers who sell a wide range of products may be tempted to steer you toward high commission products. Generally, the highest commission investments are "packaged deals," such as loaded mutual funds, insurance plans and annuities, managed accounts, unit investment trusts, and limited partnerships. According to Mary Calhoun, former Merrill Lynch broker and author of the forthcoming book The Shady Side of the Street, an individual investing $10,000 with a full-service broker will pay the following commissions:

Money market fund zero
Treasury securities $50
Common stock $100
Unit investment trust $300
Mutual fund $800
Limited partnership $1,000

If you want an eye-opening, shocking account of what can go wrong in a brokerage account, read the new book Mugged on Wall Street, by David X (Simon & Schuster).

Third, take advantage of small firms that specialize in such areas as foreign stocks, penny mining shares, new issues, or limited partnerships. You can profit from their limited expertise without being baited into more-expensive products. Generally, however, their commissions are as high as full-service brokers.

Fourth, get independent advice on a regular basis. You will seldom get objective, unbiased information from a full-service broker because he sells what he recommends. Hence, it pays to subscribe to independent financial publications that don't have an axe to grind: the Wall Street Journal, Forbes, Personal Finance, etc. (Money magazine is unbiased, but its information is frequently stale and conventional.) Don't expect to get objective advice from "financial planners." Over 90 percent are commission-oriented, just like brokers.

One more tip: a bull market on Wall Street makes lousy brokers look good. When a bear market strikes, the number of brokers can fall off significantly, leaving you holding the bag. It's the risk you take when you don't manage your own affairs.

If you want professional management but are skeptical of brokers, here's an alternative: buy no-load mutual funds. Those that consistently rank high on the Forbes honor roll (issued every September) have an excellent long-term record. Examples: Value Line Leveraged Growth, Twentieth Century Select Investors, Mutual Shares, and Nicholas Fund.

Remember, it's better to profit from experience than to rely on inexperience.

Mark Skousen is the editor of Forecasts & Strategies and author of High Finance on a Low Budget.