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Broker tells how guerrilla tactics can generate big sales

 (The Spokesman-Review)
(The Spokesman-Review)
Universal Press Syndicate

A former stockbroker once revealed to us how he was trained and under what conditions brokers typically work. Here are some eye-opening snippets.

•It was hard to land the job of broker, as his educational background (bachelor of science in business, master of business administration) and training counted far less than his lack of prior sales experience.

• His on-the-job training included a course actually called “Guerrilla Cold Calling,” which covered how to call and sell to as many prospects as possible. The rule of thumb was that out of 100 calls per day, 10 people might listen to the pitch, and two of them should buy, meaning two new clients per day. Prospects were found by looking in the phone book for doctors, lawyers, etc.

• Every morning there was a “squawk box” call from the home office on Wall Street, listing stocks upgraded or downgraded by analysts that day. These represented reasons to call clients and urge them to buy or sell (generating all-important commissions).

• The brokers were updated weekly on new investments to push, such as complicated options strategies or limited partnerships that could be pitched as tax shelters. They were also given lists of stocks that the firm held in inventory and needed to get rid of. These were to be aggressively sold to clients “commission-free.” (Our former broker notes that since these stocks were so unappealing to most of the market, getting them for no commission was hardly a bargain.)

• Calls were often made during dinner hours, and clients were urged to decide immediately. (“Commission-free if you buy tonight!”)

• Contests were even held, with prizes awarded to those who generated the most sales.

This is just one broker’s experience, but from what we’ve heard, it’s not an uncommon one. It’s true that many brokers are good people who do well for their clients. But sadly, many others are simply salespeople, ringing up commissions in order to get ahead. We think this represents an unacceptable conflict of interest. Financial professionals should be compensated on how well they manage your money, not how often they move it around.

Ask the Fool

Q: What’s a mutual fund, and how can it benefit me? How does it work, and how safe is it? – Connie Rodgers, Pleasanton, Calif.

A: A mutual fund is the money of many investors, pooled together and managed by a company of professionals. Mutual funds are a terrific idea, because they permit ordinary people who aren’t investment whizzes to increase their wealth by investing in securities carefully chosen by fund managers. At least, that’s how it’s supposed to work.

There are many kinds of mutual funds, tailored to many kinds of investors. Some funds invest just in stocks, others in bonds, and some in both. Some focus on large companies, others on small companies, and others on both. Some seek income through dividend- or interest-paying securities, and others aggressively seek fast-growing firms. Some specialize in one industry (such as health care or real estate) and others in one region (such as Asia or Europe).

Unfortunately, many professionally managed mutual funds don’t do so well for their investors because of hefty fees and/or manager problems, such as a lack of talent or a counterproductive focus on short-term results. To combat this, many investors sensibly opt for index funds, which tend to sport very low fees and invest only in the stocks of major indexes, such as the S&P 500.

Learn more about mutual funds at and research them at Also, check out our newsletter, Motley Fool Champion Funds, which profiles exceptional mutual funds — it’s at

My dumbest investment

My absolute dumbest investment has to be Lucent Technologies. When I bought it back in July 2003, it had announced a terrible quarter. The company had negative equity, no recent profits or signs of upcoming operating profits, outsized pension liabilities, and declining revenues. But the stock has now more than doubled for me. The company’s business still does not look good, and it has been missing out on several major contracts that, in years past, would have been virtually guaranteed. The company, frankly, still looks terrible, just not as fatal as it did last year. So why is it my dumbest investment? Because it was purely speculation. Every single piece of objective data said, “Stay away from this turkey.” There was no good reason for me to buy Lucent. But buy I did, and now I’m sitting here with an outrageous paper gain. I still have no reasonable rationale for purchasing or holding the security — and that is dumb! – Chuck Saletta, Cincinnati

The Fool Responds: You’re right, and lucky. If you still don’t believe in Lucent, you should sell.

The Motley Fool take

Heavy equipment maker Caterpillar (NYSE: CAT) recently reported earth-moving first-quarter results, featuring a 34 percent increase in revenues to $6.47 billion and earnings surging 214 percent.

For 2004, Caterpillar is projecting a 20 percent rise in revenue and a 65 percent to 70 percent jump in earnings, a forecast that can safely be called a blowout.

Admittedly, Caterpillar shares are already near their 52-week high. But if you believe the company’s outlook for itself and the global economy, Caterpillar should be on your radar screen.

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