Pofessional Investment Advice

CXO Advisory Group does an excellent job in reporting on, and discussing a variety of research topics within the investing arena.

Here is an excellent example of how individual investors (individual clients of a large European broker) responded to an offer of free, unbiased investment advice (personalized written
and verbal)

For more details see the original post.


The offer was made by email, with
telephone calls to anyone who did not respond.

The response study found that:

  • Only 5% of the 8,195 clients accept the offer

  • Those accepting tend to be male,
    older, wealthier, financially more sophisticated, and have a longer relationship with the

  • Among accepted offers, if implemented, the free advice would have improved client investment performance.  This free advice was a bargain

  • However,  very few clients who accept the offer actually follow the
    advice. Those who do, tend to follow have higher account values than
    those who do not.

Conclusion: Evidence suggests that individual investors,
especially those apparently most in need, tend to ignore expert advice.

There's not much to say from a single study.  Yet, it rings true.  The vast majority don't want advice or don't know whether to trust the advice. 

When so few people accepted the offer, it's difficult to know how valid the conclusions are.  Yet, I would love to know why these were the results:  I can see alternatives:

a) The novice wants to make trades.  In other words, to get out and play.  He/she wants action.

b) The uninformed novice is willing to pay for advice.  No statistics, but the fact that many costly newsletters, with poor track records, continue to stay in business musts get their customers from somewhere.  The ill-informed novice is the most likely customer. 

There are higher quality newsletters, and they survive by having a good track record and having subscribers renew.

Is it simply that 'free' advice cannot be trusted?

b) The wealthier, older, less-emotional person knows that the bottom line is the money earned.  There is no ego gratification required, and thus, earning money is more important than making the trades oneself.

Trusting the broker, this investor also trusts the free advice.


After finalizing this post last night (Wed), I found a new post by Felix Salmon, in which he describes a Charles Schwab survey. The survey results are lengthy.  For a quick summary, see Salmon's blog.

"People want investment advice when it comes to their 401(k) plans,
especially if they can get it for free.

And when they take investment
advice, they change their savings habits significantly [by saving more money].

But it turns out
that even when companies do provide free investment advice for their
employees, the employees don’t take it."

The findings of the two studies are similar.  Free advice is worth hearing, but few use it. 



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7 Responses to Pofessional Investment Advice

  1. Roberto 09/16/2010 at 6:51 AM #

    Hi Mark,
    I’m Roberto from Italy, sorry for my bad english.
    I want to thank you for the professional advice that you gives to us, it’s very useful, I bought your “lessons of lifetime” and it’s very useful too, thanks again.
    I know options trading since 2006, but I made very few trades in the real market, losing a couple of hundreds of $, take a break from the real market and go back to study, and I realize that I always need to study!
    My question is: in you opinion it’s possible to live by trading? Do you live by trading? Do you know someone that lives by selling iron condors? And last but not least, do you know some hedge fund that operate in options, especially iron condors?
    Many thanks from Italy
    I follow you every day.

  2. Mark Wolfinger 09/16/2010 at 7:57 AM #

    Buona giornata
    Yes, the education process, or the need to study, is something that does not end.
    Yes, it is possible to live by trading. But, it is difficult. The very first truth is that you must prove to yourself that you are a profitable trader – consistently – before you give up your job and try to trade for a living.
    No, I do not trade for a living.
    More in a full blog post soon.
    Thanks for the questions.

  3. Roberto 09/16/2010 at 8:26 AM #

    Hi Mark, and thanks for the quick reply.
    I asked you this because I think that a large part of the traders (including me), wants to live by trading, and that’s the reason, in my opinion, why a lot of people get tempted by this “golden” world.
    Have a nice day

  4. Jorge 09/16/2010 at 10:24 AM #

    Hello Mark, I read an article about the VIX and how you can predict market movements using it. ….
    In the article the writer says: “Enter the wondrous VIX, an amazing tailor-made volatility index that provides an outstanding empirical proxy of general investor sentiment, of popular greed and fear in the equity markets. Others are afraid when the VIX approaches 50, marked with the green bar above, and that is when contrarians should consider buying like crazy. Others are brave when the VIX approaches 20, marked with the red bar above, and that is when contrarians should consider selling with reckless abandon.”
    What do you think about this statement? Is the VIX a good barometer of future market movement? Is the current two day spike in volatility predicting a big movement to the downside, even with the market moving sideways?

  5. Mark Wolfinger 09/16/2010 at 11:05 AM #

    1) I removed the link. It is a 2002 article, is outdated, and just not important.
    2) If you are interested in VIX, you are going to have to read many articles. And make them recent articles.
    3) No, I do not think it’s a good barometer.
    4) The past two days are nothing remotely resembling a spike. The move has been TINY.
    A spike would see VIX move from 25 to 40 in 2 days. That’s a spike. Just take a look at the historical VIX graphs to see that this is ‘noise’ and not a significant move. In fact, I cannot believe that you did not already do that.
    No matter what the market does from here, do not believe this two-day ‘spike’ predicted anything. I’s just noise.
    Jorge, I’m happy to answer questions, but it’s not right for you to ‘discover’ something that’s new to you and then instead of doing the research, you come to me for my opinion. This is the kind of thing you want to read about for yourself. Then ask questions.

  6. Steve 09/16/2010 at 11:52 AM #

    Thanks for finding all of these great posts/articles and passing them on to us. The last 2 days have been wonderful.
    I totally believe the results. I was told a story once, that there was a book published that actually told you how to beat Vegas. It was very long, very indepth but statistically if you followed it to the letter, you win. Vegas tried to ban this book but then realized that 99% of the population was too lazy to read it and apply it. So they didn’t care.
    It is not only ego gratification that keeps us from taking good advice, it is laziness and boredom. Most good advice requires action on our part. How does the saying go…”give a man a fish, feed him for a day, teach him how to fish, feed him for a lifetime.” So instead of learning how to trade the market, they just play trades someone else recommends but have no clue how to fix it when it breaks. We want to hit the home run. We don’t realize that 2 or 3 singles accomplishes the same goal but with a lot less strikeouts.

  7. Mark Wolfinger 09/16/2010 at 12:22 PM #

    Steve B,
    Las Vegas does protect itself by not allowing card counters to play blackjack.
    But I understand your point. They don’t have to take much defensive action because no one shows up to play offense.