Brokers Breaking Clients' Spirits?
All investors need to believe they have the chance to succeed.
I used to be an investor in the fund. Last fall I took out my money after the SEC imposed its ban on short-selling financial stocks because I knew the ban would be catastrophic to convertibles and I thought the market might not gauge the full impact right away. In general, I'm pretty strongly opposed to any kind of short-term trading in mutual funds, but that was no ordinary set of circumstances.
I reentered the market after the ban was removed but did so with a host of individual convertibles. I was fortunate, of course, both to understand the product and to have a brokerage account with a major firm that could execute my orders.
These trades have been working out well thus far. But I wish I'd put some money back into the Vanguard Convertible Fund while I had the chance. At least my father took my advice and invested.
While I certainly don't blame Vanguard for closing the fund on Larry's advice (in fact, I admire them for doing so) since size is most definitely the enemy of performance in a relatively finite market like convertibles, I think it's a bit disappointing for the investing public. I continue to believe that a fixed-income instrument with significant upside should have great appeal for individual investors and that brokerage firms of all shapes and sizes should do more to encourage their clients to invest in individual bonds, including convertibles.
The opposite seems to be taking place. A friend told me the other day that when he calls his brokerage firm to ask price quotes in individual bonds, the firm refuses to quote him 2-sided markets. It's easy to understand why once you learn that in the bonds he was exploring, institutional accounts were trading in the low 70s while retail buyers were paying above 80 and retail sellers were receiving below 60.
This is simply unconscionable. There's nothing wrong with institutional investors receiving the equivalent of a "volume discount" that might be available in any commercial transaction. But all investors need to feel they have a legitimate chance to succeed. Otherwise, many of the stigmas now attached to the financial world will grow and end up hurting virtually everyone.
I call upon brokers everywhere to give their clients a better deal.
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