Confessions of a former online trading broker

online trading broker

This is a guest post from John S. John is the founder of Frugal Rules, a dad, a husband and a veteran of the financial services industry. He's passionate about helping people learn from his mistakes so that they can enjoy the freedom that comes from living frugally. Follow him on Twitter. Learn investment lessons during his years working as an online trading broker.

For four and a half years I dragged myself dutifully to a job that did not suit me ideally. I lived for weekends when I could spend time with my wife and three young children. Shortly after our youngest son was born, I left that job to start my own business. One year later, I don't regret my decision. I don't miss the four-by-four-foot cubicle confining me either (or the timed bathroom breaks, but that is another tale for another time). What I do miss are the stories.

What I learned talking to average investors every day for four years as an online trading broker

Every day, I spoke with average investors, most of whom had absolutely no idea what they were doing with their money. As a licensed stockbroker, I wanted to point them in the direction of wise financial dealings, but I was hamstrung to give them guidance. I could only direct them to my company's products, which ultimately became one of the key reasons why I left that job.

As I packed up a shoebox full of things my last day in the office, I made a mental note to carry with me the lessons I'd learned from the many everyday investors I spoke with and share them with others when it made sense to.

Today, I'd like to share three stories that encapsulate the good, the bad and the ugly of what I saw from average investors during my time in the financial services center of a Fortune 1000 company.

The good: A young client accumulated $300K

I took about 80 to 100 calls a day. Once a month I spoke with someone who had a good handle of his investment account. Take “Matt,” for example. At only 27 years old, Matt already had $320,000 in his account. He enjoyed a very decent rate of return of about 10 percent per year on his equity investments. This is despite the lean recession years and the times when the major indices were rising and falling more times in a day than a yo-yo in the hands of a cub scout.

How Matt turned $50K to $300K

Matt wasn't born with a silver spoon in his mouth. From what he told me, he went to college, worked hard at a good-paying job and lived frugally. With no student loans, he was able to invest 50 percent of what he made each year. He had a diversified portfolio and he kept a close eye on it. He made good investment choices that paid off for him with nice gains. Matt started with $50,000 and in five short years had turned it into more than $300k.

Matt taught me to stick to my investment strategy. Seeing his success reminded me to stick with my investing plan and passionately pursue my financial goals. Unfortunately, Matt was not the typical investor.

Related >> Read 10 money mistakes to avoid in your 20s.

The bad: Glenda wants to know why we don't sell her penny stock

“Glenda” and other investors like her called me multiple times daily absolutely livid, wanting to know why they couldn't purchase 10,000 shares of XYZ penny stock through our online trading portal.

“You made me miss out on $1 million!” they'd scream.

I'd tell Glenda that we didn't offer the particular stock she was interested in because it didn't pass our review board, but my explanation fell on deaf ears.

Investment lessons from Glenda

Investors like Glenda are in the “bad” category because they look at investing in the stock market like playing the lottery. They hope that by purchasing 100k shares of the Amazing Electrical Spatula Company at .001 cents per share, the stock will rise to $10 per share and they'll be able to retire to the French Riviera.

Glenda taught me that there's a place for taking risk in investing but not banking your retirement savings on the equity equivalent of a scratch-off lottery ticket.

Related >> Learn how to start investing in stocks

The ugly: Anthony thinks five families run the world

Maybe it's the idea that they're anonymous on the phone but I regularly spoke to people who believed that five families controlled everything in the world. It wasn't uncommon for callers to blame entire groups of people for the flash crash of 2010 or even their own financial woes. I guess callers didn't realize that I could see all the details of their account, including their name and address, on my computer screen.

Some investors would use derogatory terms and hurl racial epithets toward others. And I had to politely, quietly listen since I represented my employer and not myself. Then, some investors were just downright unbalanced when it came to investing. I'll never forget the caller who passionately pleaded with me to invest in solar-powered jets, proclaiming them as both the wave and goldmine of the future.

What average investors taught a stock broker

Crazy callers like this one taught me to keep a firm grip on reality when it comes to investing my money. From them, I learned the importance of not letting emotion sway my investing decisions, one of the hardest disciplines to master. So, while I don't miss my old day job, I do miss the people I spoke with since they remind me just how little most of us know about investing and how well-served many of us would be by a little financial literacy.

Do you have a story to share about a crackpot investor or a wise individual who's pointed you in the direction of success?

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Jon @ MoneySmartGuides
Jon @ MoneySmartGuides
6 years ago

I deal with my fair share of Glenda’s as well. They call all of the time wanting to buy a stock because so-and-so on TV said the company was coming out with a revolutionary new product/service. I’d do my best to explain that the buy doesn’t fit in with her long-term plan. A week later, she would call with another hot tip and would put me down if her previous recommendation that I talked her out of did indeed rise. She never remembered all of the losers I talked her out of, nor how that hot stock only shot up… Read more »

nicoleandmaggie
nicoleandmaggie
6 years ago

Could be worse– My FIL is always asking us about crazy stock tips that his investment broker is recommending. (Makes me think that there’s something pretty scammy about Edward Jones, or at least his local office.)

Financial Independence
Financial Independence
6 years ago

I’m glad to hear there are still investors like Matt – identifying a simple yet effective strategy and letting it run for years. Good investing doesn’t need to be exciting. Those like Glenda aren’t investing, they are gambling. I never understood the appeal of penny stocks – surely it comes down to the market cap and growth potential, the cost of each stock unit is one of the least relevant pieces of information in my mind. Imagine if Apple stock was worth 1/1000th of what it is now but there were 1000x more shares….the company is still worth the same… Read more »

Mom of five
Mom of five
6 years ago

I have penny stocks. I never hold more than two at a time and I’ve never had more than $2000 of my money in them. It’s not a retirement or investment strategy but it’s fun if you have a little money you don’t mind losing.

Jesse T.
Jesse T.
6 years ago
Reply to  Mom of five

Very well said mom. It wouldn’t hurt to grow little monies 😉

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

I really do not understand the appeal of penny stocks either. If you want to throw a little bit of money then I have little problem with it. The problem is that many put too much in them or invest a chunk of their retirement portfolios in some.

The big problem I have with them, overall, is that many are simply shell corporations that you can get little info on.

FI Journey
FI Journey
6 years ago

I’m actually surprised how many “Matts” there are out there. The more I read other personal finance blogs the more I find out about them. It makes me believe even more strongly in frugal, balanced living and sound investing strategies.

Good post John!

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  FI Journey

There are a few of them out there. Sadly though, they’re outnumbered by those who don’t know what they are doing or are making foolish mistakes.

Carla
Carla
6 years ago

I would fall into the “foolish” category for sure if I went into the game. I guess its easy to be a sound investor like Matt when you have money to invest. I think the lottery book of investing is appealing to the desperate low earners.

Edward
Edward
6 years ago
Reply to  Carla

It’s not “easy to invest when you have money to invest”. What sort of statement is that? He saved his money and planned carefully for the future. When I hear about somebody who’s something well, I perk up my ears, listen, try to learn from them, and bow down. I don’t belittle their achievement. “Oh, it’s easy to win the Olympics if you’re all fit and have good leg muscles.”
“Easy” are the people that blow all their cash at Target and live paycheck-to-paycheck.

Elizabeth
Elizabeth
6 years ago
Reply to  Carla

@Edward — I don’t think it’s easy at any stage, but I do think it’s easier to do when you’ve got plenty of disposable income. Investing $10K isn’t as scary when you have $100K than if you only have $20K.

Besides, some advisors won’t even talk to you until your net worth is over a certain amount. When you’ve got lots of money to work with, everyone wants to help you 😉

The Warrior
The Warrior
6 years ago

Hey John – Completely understand your experience as I used to work in the financial world. I primarily worked with the advisors in the field discussing product information and advice as to why something would and wouldn’t work. Unfortunately, the clients you spoke of that are all over the place, often have a financial advisor that is also just focused on what the commission payout will be. Very little regard for whether this product they are selling is truly better than the rest or if they are just selling to sell. This leads to the industry getting a bad name.… Read more »

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  The Warrior

Hey Warrior,

I agree that there are unfortunately too many bad apples out there in terms of advisors. There are many good ones out there, but I believe they’re outnumbered.

Great point on more needing to take responsibility for greater financial literacy and understanding of how to manage ones investments.

Fredrik von Oberhausen
Fredrik von Oberhausen
6 years ago

Only last Saturday at a wedding the father of the bride told me that he would invest in a shoe producing company. I then asked him why he wanted to invest in it? He answered that the daughter of a relative of his had started to work there and now for sure the company would start to perform even better (this is a company with over 40k employees and she was not in the management group). I asked him what about the P/E, P/B, ROE, dividends? How are the competitors doing? He could not answer any of those things. I… Read more »

Anne
Anne
6 years ago

Yikes, what a frightening financial story.

rjack (Mr. Asset Allocation)
rjack (Mr. Asset Allocation)
6 years ago

I guess watching my Dad invest while I was growing up taught me to buy and hold solid, large company stocks. He hardly ever traded stocks, but believed that owning stocks was critical to financial independence.

Unlike my father, I don’t own any individual stocks, but I buy and hold lots of low-cost, indexed mutual funds. I think if he were alive today, he would understand the benefits of these types of funds.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

That’s awesome you got to see that while growing up rjack! So many of us do not see that, which is a shame.

I’d agree, that going with some solid and low cost index funds are a great way to go for many.

Matt Becker
Matt Becker
6 years ago

I like this “Matt” character. He sounds like a smart guy. Great name too. These are definitely some great lessons for anyone out there interested in investing. I’m glad you got out of there while you could. I don’t think the life of a stockbroker really fits the bill for someone interested in truly helping people.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  Matt Becker

Ha ha, I couldn’t imagine why you like the Matt character. 😉 Yes, I am glad to have gotten out. Sadly they weren’t concerned about helping people, just fattening the bottom line.

Derek @ MoneyAhoy.com
Derek @ MoneyAhoy.com
6 years ago

John,

Wow – I didn’t realize that there were so many crazies out there willing to dump their money into horrible investments.

That must have been a real soul draining experience. It’s a good thing that you’ve turned from the dark side and are helping people make a truly better life for themselves through frugal advice and sound investing principles.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

Oh, if you only knew Derek. Some of it goes back to a lack of financial literacy, though often times it’s not.

Soul draining is a great way to put it. As opposed to being encouraged to actually try and help people we were forced to sell crappy products to people who didn’t need them.

Derek @ MoneyAhoy.com
Derek @ MoneyAhoy.com
6 years ago

John,

I’m glad you realized that you had more you could offer to society 🙂

I really enjoy some of your stuff over at FrugalRules.

Debi
Debi
6 years ago

What kind of business did you start? I wish I had your courage. I find myself, after 36 years with the same company, bored, discouraged with new management, and hard to work up enthusiasm for a job that I loved for so many years. Now, 6 years from retirement, I feel trapped by the generous vacation time, good benefits, and profit sharing plan. In order to make my retirement dream come true I can’t risk a big salary cut to make a change.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  Debi

I am sorry to hear that Debi and can completely understand not wanting to take a serious salary cut now.

My wife and I run an advertising business, and to be fair she had started it about two years before I quit and was needing help running it. We manage advertising campaigns, from billboards, TV/radio ads, and website material for local and a few national companies. It wasn’t easy taking the plunge, but we’ve enjoyed it o far.

Debi
Debi
6 years ago

Congratulations, and good luck to you.
p.s. I did check out your blog today.

Brian
Brian
6 years ago

I’m not investing much at this time as I’m focused on debt repayment, but when I do my plan will be similar to Matt’s slow and steady.

partgypsy
partgypsy
6 years ago

I came from an academic background and knew nothing about finances from either college or graduate school mentors. However a mutual friend who worked at the same university I went to graduate school who was older than me, after talking to him found out that he had a sizeable amount in his retirement fund, and really, could retire at any time. From the surface it didn’t appear so, because when he first got his job many years ago he purchased a pretty but modest house in an inexpensive neighborhood and never moved. Despite increases in his salary, he fixed up… Read more »

Simon @ Modest Money
Simon @ Modest Money
6 years ago

Always great to read experiences from the “financial trenches”.
If I were to sum up the lessons from Matt, Glenda and Tony in a single statement: Temperaments and emotions play a far promiment role in our financial decisions than we care to admit.
At the end of the day, adopting a disciplined & patient temperament like Matt combined with hard work is an almost sure path to financial freedom.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

I think you’re spot on Simon. Our emotions can really get the best of us if we don’t keep them in check, which can really do a number on your investing. That said, hard work, commitment and a plan that you stick with can do wonders for your investing.

Grayson @ Debt Roundup
Grayson @ Debt Roundup
6 years ago

I think this shows that there are still many people that invest with their emotions, not rationale. Matt invests with rationale, but others go off a whim and what people close to them “sell” them on.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

Totally agreed Grayson. If I saw 1-2 people out of 10 making decisions based off of reason that was a good day. It can be difficult for many to make that separation, but it’s so vital.

Matt @ Your Living Body
Matt @ Your Living Body
6 years ago

I like what the poster said – too many people invest with their emotions. They also invest going too much on what their co-workers tell them too which is why most people don’t do any good at investing.

PawPrint
PawPrint
6 years ago

My parents, who lived in Seattle, were pretty decent investors. However, they declined to invest in the IPO of a local company that they deemed “too risky.” I looked up to see what 100 shares of Microsoft would be now–oh, my. They did okay on Starbuck’s, however.

Dana Twight
Dana Twight
6 years ago
Reply to  PawPrint

Pawprint: they were lucky to be offered 100 shares. At my office then, shares were doled out in 25 share increments due to the low allocation to our branch office. MSFT was quite a risky investment back then. Rest assured that your parents were not alone in their assessment.

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  PawPrint

Wow, too bad about that. That said, IPO’s can be extremely risky. For every MSFT there are 10+ more Groupons that just do nothing.

getagrip
getagrip
6 years ago
Reply to  PawPrint

And I was asked to invest with a guy who was introducing Nike and had the East Coast distribution locked up in the early 80’s and I just couldn’t see investing in gym shoes. Woulda, coulda, shoulda. Then again I also was offered an investment in a new type of gear mechanism that would revolutionize motor vehicles. Glad I blew that one off.

Nobody brags about their actual losers, or even their so-so investments. Just their wins and the big ones that got away.

Dana Twight
Dana Twight
6 years ago

John: I too, spent 4 and 1/2 years toiling at a wirehouse, but in the 1980’s. Liked your 3 stories. There is another type of client as well-who goes with someone else because you told the truth, but the other broker told a better story. I lost a 400k order once because I told the prospect that there was interest rate risk with their prospective bond fund purchase. They went with someone else. My manager was mad at me for “losing the sale”. They bought the exact same thing elsewhere. By the way, I characterize those years like my husband… Read more »

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago
Reply to  Dana Twight

Ah, yes, I had a few of those myself Dana. It was part of the reason why I left actually. It just got to the point where I could not live with myself being told I basically had to lie to get business. I love getting more business, but not at the expense of violating my conscience.

Helen
Helen
6 years ago

Years ago and very naive I so very impressed with brokers knowledge until I attended a workshop with several former brokers in attendence. I found out that whatever big investers (ie pension funds etc ) are dumping becomes the flavor of the day. The brokerage houses never turn down business from large investors and since they did not want to have these stocks in inventory and incur a potential loss those stocks were then heavily marketed to small investors. So beware, whatever your broker recommends may just be the flavor of the day ie. something to unload before the share… Read more »

Mrs PoP @ Planting Our Pennies
Mrs PoP @ Planting Our Pennies
6 years ago

I’ve also worked in finance, though not customer facing, and I remain surprised at the number of finance employees who still approach their own finances and trading as though it’s a game or something where they have to gamble big in the short term to “win”. They’d compare trades with one another the way I imagine many other people compare fantasy football draft picks – but there are thousands of dollars on the line. I’ll never forget someone walking through the office saying “Who had the **** to buy Bear Stearns at $2 this morning? I bought X,000 shares!” the… Read more »

John S @ Frugal Rules
John S @ Frugal Rules
6 years ago

I agree Mrs. Pop. I’ve seen that myself numerous times myself and it just makes me shake my head at times. That said, I don’t know that I’d be bragging to anyone about getting into Bear Stearns. I know it’s not “sexy” or exciting, but slow and steady wins the race many, many times.

Halley Pelnar
Halley Pelnar
6 years ago

Very useful info, thank you so much!

Rory and Robin
Rory and Robin
6 years ago

I also worked as a registered representative for the big banks, and I could tell you many war-stories. The stories are the best part of the job. The worst is that you are forced to sell people poor financial products and charge them too much to do it? I’m wondering, did you ever sell at a 4.5% sales load?

Well, I did, and I’m not proud of it. I also packed up my stuff and took a lower paying job working as a non-profit financial counselor. No conflict of interest there. No intense selling pressure. Great decision!

Jester
Jester
6 years ago

Is it a gamble? Or an investment? What I heard from many people who has deep pockets enough to join the stock trade is that – they need a little luck. Thanks for this!

Girish
Girish
6 years ago

I am individual investor from India. I can relate to Matt. I work in IT, make good money, live well below my means, save a lot and then invest the savings in stocks. No FD, no bonds just stocks. I am in mid 40 and want to retire by 50. I think I can live off my funds and my skill as value investor even now. How did I achieve it? By sheer hard work, education, discipline and solid process that made people like Ben Graham, Buffet and peter Lynch successful. I am value investor. I invest in stocks that… Read more »

Collin
Collin
5 years ago

I am an individual investor from the Netherlands and guide HNWIs in asking the right questions to their advisors. Always keep in mind your risk profile and don’t change your strategy because of short term volatility changes. Ask other people to challenge you in explaining why you have choosen a certain strategy instead of convincing yourself.

bookertee
bookertee
5 years ago

Nice content…
The best online broker is very important for the successful investment. So choose with care.

Timothy Kaliszewski
Timothy Kaliszewski
5 years ago

Hello to all, I have read your blog and it is very interesting to me. I am currently 28 years old, I work full time but not making enough money to live off of. I am currently enrolled in school for another 1 year and a half by then I will have my bachelor’s degree in business administration information technology. I’m currently not happy at my current job, I have a 5 year old son on who I’d rather spend time with. I am a single father and became intrigued in the stock market field. In this country it is… Read more »

MardyBum
MardyBum
4 years ago

As a 17 year old who’s dream is to be a stockbroker, I enjoy reading articles like this to prepare me for my job. Thank you .

Nicholas R
Nicholas R
4 years ago

I love this. My dream is to become a stockbroker as well.

Adam Mhrez
Adam Mhrez
3 years ago

And I had to politely, quietly listen since I represented my employer
and not myself. Then, some investors were just downright unbalanced when
it came to investing. I’ll never forget the caller who passionately
pleaded with me to invest in solar-powered jets, proclaiming them as
both the wave and goldmine of the future.

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