Advisory Investment Service | Patrick McConnell
21 Jun 18

Advisory Stockbroking – Lessons learnt from a differentiated approach to investing

Being an advisory stockbroker involves going on investment journeys with our clients. Having regular client contact means we suffer the lows but also enjoy the highs.


The world is becoming increasingly connected and financial markets are moving ever faster which keeps us on our toes and means we can never stop learning. That said there are some fundamental principals that have helped during my advisory stockbroking career.


No two investors are the same

Like many things in life, investing can be highly personal and individuals have a choice: Do they do it themselves? Do they entrust someone else to run their money? Or do they require some professional advice but prefer to make the eventual investment decisions themselves?

The three services typically offered to meet investor’s needs are Execution Only Stockbroking, Discretionary Portfolio Management and Advisory Stockbroking. Due to their lower fees, increased regulatory costs and perceived compliance risk, the traditional Advisory and Execution Only Stockbroking services are becoming harder to find offshore. Investors who worry about tackling the investment world alone and seek some tailored investment advice whilst maintaining their own investment preferences may find Advisory Stockbroking the most appropriate strategy.

Long term is key

Whilst the true value of a business is unlikely to fluctuate significantly from day to day, financial markets often provide a sawtooth-like overlay of a business’ expected worth through the share price. Whilst this does mean timing investments is important, a long term approach is crucial as share price volatility will smooth out over time. Likewise financial markets move in cycles and investors should be prepared to invest for a minimum of three to five years. Usually recessions and bear markets do not persist for more than a couple of years which usually gives time for recovery from market shocks. And fear not as the odds are in your favour, over the long term investments in real assets such as equities and property have historically generated high single digit annual real returns and bonds mid single digit real returns.


Diversity is the word of the moment and none more so than in investment portfolios where it is the most effective means of reducing portfolio risk and smoothing investment returns. A minimum of eight to 10 holdings across asset classes and geographies is advisable. Depending on investor preferences, advice is given across asset classes including cash, bonds, direct equities, bonds, funds and investment trusts.

Volatility is your friend

Or more specifically, volatility is the friend of the long term investor. For the reasons outlined above, the regular upward and downward swings in share prices and indices provide many opportunities for investors to buy low and sell high. Knowledgeable market participants may even day trade this volatility but others can take advantage by buying into market weakness, helping pound cost average and potentially enhancing long term returns.

Do your homework and take emotion out of the equation

Financial markets can be a scary and dangerous place for the uninitiated and there is no substitute for fundamental analysis. Know what you own and why. The market prices of investments can be affected by any number of things, most of these will have very little or no bearing on your investment and so can be considered noise. The market also has a tendency to over-react both to the upside and downside. If you have an understanding of what genuinely impacts your investment and what it should be worth (its intrinsic value could be based on its replacement cost, future profit potential, discounted future cash flows, strategic value etc.) then market opportunities will be easier to spot. At any one point in time, there will be multiple investments trading materially below their intrinsic value, whilst many others will trade significantly above.

Go against the herd

Anyone who has read Joel Greenblatt’s “The Little Book that Beats the Market” will know that one can significantly beat the market over the long term by simply applying a systematic approach to stock selection, namely buying high quality businesses (companies that generate high returns on capital) at low average prices (low price to earnings multiples).  Whilst it is important to be conscious of structural and global macroeconomic trends, advisory stockbroking typically adopts a fundamentals-based bottom-up stock selection process. Quality businesses rarely trade at cheap prices so this will often mean being patient and taking a contrarian view when there is some short term negative newsflow or broader market weakness. Having a contrarian stance requires one to do their homework, have courage in their convictions and accept a longer term time horizon.   

Compounding is the 8th wonder of the world

If Einstein said it, it must be true! In simple maths compounding at 7% per annum will double your investment portfolio over 10 years. The FTSE-100 index trades on an annual earnings yield of 7% and there are many actively managed funds which have historically beaten the market and generated double digit annual returns over many years. Whilst history is no guide to the future, it is all we have…


This article appeared in the Jersey Evening Post's Investment supplement on Thursday 20th June 2018

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