TAKING STOCK: Kick that broker to the curb

Dear Mr. Berko:

We are 74 and 76. We've used the same broker since early 2002, and our account, which was worth $765,000 back then, is barely worth $705,000 today.

Our mutual funds haven't done well, and we've lost money in various unit trusts. Our two variable annuities are barely even. While our utility issues and our few tech issues have done well, our drug stocks and real estate investment trust stocks have not. Last year, we bought a housing real estate limited partnership, which we didn't want to buy, but we were sold on it because the housing market is at or close to the bottom.

We haven't taken any money from these accounts, but we'll need to soon. So our broker wants us to buy 2,000 shares of Value Line because the 60-cent dividend would give us $1,200 in income, and we need more income like this very badly.

Please give us your thinking on Value Line's stock as a long-term investment. We've enclosed our two statements and would appreciate your income recommendations too.

LD, Kankakee, Ill.

Dear LD:

It seems that you've got one of those numerous average brokers who float the surface of still water like green algae and are capable only of giving average advice. And average advice is dangerous, especially in this volatile, attack-dog stock market where the slower dogs eat the bigger dogs. If you continue to use a Chihuahua for a broker, then you should limit your stock selections to issues listed on the Mexican Stock Exchange.

I was not surprised to note that 70 percent of your portfolio, or $525,000, is invested in very high-commission products that also pay quarterly trailing commissions to your broker as long as you own the investment. What else would you expect an average broker to do? And the remaining $225,000 is invested in a hodgepodge of average issues that one would expect from an average broker.

Worst of all, his Value Line (VALU-$11.34) recommendation literally and figuratively reeks of professional incompetence. VALU has been in business since 1931, produces a panoply of investment-related publications, some of which are darn good and some of which are not. Years ago, VALU was a respected name in the investment research business - that is, until Bernhard & Co. (I think Bernhard produces accelerants that can burn through steel) gained control.

In 2007, VALU had revenues of $83 million, paid a $1.20 dividend, and had shares trading in the middle $50s. Since then, a new sales force culled from rejected Burger King applications crashed revenues to $49 million, cut the dividend three times to 60 cents a share, and euchred cash balances from $127 million to $19 million. There's not a brokerage house on Wall Street or Crapo Street (Flint, Mich.) that has an inkling of interest in covering this company. Short of a rescue by the Federal Reserve, a takeover by Morgan Stanley (who'd do well to use VALU research) or a merger with Taco Bell, you have a better chance of winning the Illinois lottery than making money on this issue.

Fire your broker post-haste, and send him along with your good wishes that he have two kidney stone episodes annually for each following year of his life, as he so poorly distinguished himself in recommending those disparate issues in your account.

It would be improper of me to give you specific income recommendations. First, your account needs an industrial-sized enema, plus an experienced, wise and knowledgeable money manager who can mend the damage of the last decade. And at your age and stage, it's imperative that you folks quickly locate a money manager you can trust to provide you with proper guidance to reach your goals over the next 10 to 15 years.

Do it now. You've wasted 10 years with this guy, and there may not be much time left.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Feb 22, 2012

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