I haven’t had a broker for a few years now but every once in a while someone asks me how to pick a good one and I dig out this story from my own experiences.

In the early days of the turn of the century I had a broker who managed 100% of my portfolio- Stocks, Mutuals, Investment Portfolio- everything. I like to be involved with my money so would have regular meetings to review the status of my portfolio. As many of you know this was about the same time when then market soured and tech stocks fell apart completely. I had seen a substantial down turn in my portfolio and had come to him to get some answers as to why I had been beat up so much, and to understand where we should go to from here. In reviewing my latest holding before the meeting I could see that most of my portfolio was in tech stock that were all purchased at or very near 52 week highs.

When I left the meeting I was more frustrated than when I went in, and it took me a car drive home to figure out why that was the case. I went over our conversation in my head and realized that my broker had done a lovely job of being completely Teflon to the responsibility for the impact to my portfolio. This was not surprising as surely there are forces in the market beyond his control, but even more than that, he had learned absolutely nothing from the lessons the market had taught him. I was reminded of what Albert Einstein once said of insanity:

insanity is doing the same thing over and over again and expecting different results

And this was exactly what my broker was electing to do. Instead of taking a step back and evaluating his trading technique and taking some personal responsibility for the mistakes he had made and how he could learn from them he instead elected to shirk responsibility and continue to smash his head against the wall.

I fired him shortly after.

The lesson here is that as investors we can learn more from our mistakes than our successes. Don’t be afraid to say I made a mistake and here is what I learned from it. This is the true way to guarantee that you won’t ever do it again. Fear of calling something you did a mistake only means that you are doomed to repeat the same mistakes again.

When picking a broker then ask them this very question. What is the worst trade you have made and what did you learn from it? They will likely never have heard this question so you may actually get an honest answer, listen hard to the answer and use it in concert with other criteria to help guide you in picking the best broker.