One of the biggest problems for human beings is the ability to do what they are asked to do. One may wonder what is the difficulty with this? It is, after all, quite simple. If someone tells you to do something at a certain time in a certain manner, that should be easy to execute, right? Take for example, a Doctor’s instruction- Take this prescription for 5 days and come back to me. The small chit of paper that he hands over to you has the names of a couple of drugs and the manner in which the medicine is to be taken. Most people try to read the scribble or ask the druggist what the medicine is for. If there is some supplement or vitamins or some such or if some syrup is dispensed by the doctor himself, chances are that most people will skip those and just stick to the main medicine (according to them). Also, as soon as they start feeling better, they start fading the dosage and seldom go back to the doctor if they feel better.
Investment and trading recommendations fare not too differently. Particularly day trading advise. It is reasonably well structured, like a doctor’s prescription- stock name, trade price (sometime even a range), the stop and the targets (sometimes several targets). Additional instructions are sometimes passed on about how stops are to be moved or even how targets are to be handled etc. So, in most cases, the service provider takes adequate care to dispense the correct information. Problem starts when the client second guesses the process. First, they take a view on the call itself, running it thru their own scan of whether they are bullish or bearish, picking only those calls that agree with their reckoning of the market. Then they pick and choose the stocks, depending on their likes and dislikes. If the advisor puts out five calls in a day, the client chooses, randomly, some of the calls while ignoring the others. After this, there is considerable hesitation in execution of the advise itself. Here the client uses his/her discretion about the timing, whether it is justified or not. Next, the important element of stop loss. Here, everyone has his own theories. And experiences which create impressions on their minds about stoploss as a concept. So sometimes they apply the stop and many times don’t. Then the target. Once a trade is in profit, there is a great hurry to exit it, not waiting for the suggested targets most of the time. If multiple targets are given, obviously there should be a phased exit. But most people end up exiting then whole position at the first target.
It is almost like they have no faith in the analysis! Why do they, then, subscribe to any service? If you are just going to do what you are going to do anyways, then is the advisor there only to provide you with a name? Obviously not. But this type of behavior is so prevalent that advisors are forced towards becoming more and more shorter term oriented- because the client’s action is so unreliable. The advisor wants to further his business and the only way he can do it is by having sticky clients. But for that he needs the client to do his bidding so that his analysis can have a chance to work out. However, the client is so short term oriented that he runs his own judgment on top of what is being offered as the advisor’s judgment. Thus both are caught in a web of their own making!!!End result is that the client doesnt make money and blames the advisor for being such a poor performer. On the other hand the advisor blames the client for being such a performance chaser and shifty all the time! Thus neither is served really and this wave of dissatisfaction on both sides builds the unsavory reputation for the business as a whole, with everyone condemning the advisor community as a bunch of charlatans out to grab their money. But the clients are really parasite who need the advisor for their existence and hence they keep moving from one advisor to another, with no change in the experience. Since the faith in the advisor is so low, the client feels constrained to act in his interest. Since the client is so fickle in his action the advisor is constrained to act in his interest as well. What a can of worms this is!
Is there a solution? Of course there is. And it is really simple. There are two parties here and it is a business contract. While the adviser has to fulfill his responsibility to deliver quality work, it is also the responsibility of the client to follow the advice as offered. An element of trust has to come to exist between the two. The advisor needs to understand the client as someone who is putting his hard earned money to work, at risk, at the say so of the advisor. The client has to understand that the advisor is laying down the terms of his (the client’s) actions. If both perform with this in mind, they will break the loop of distrust and then it can lead to much better experiences.
So it all comes down to faith and trust- basic human emotions. Lets all try to work more of those so that our lives as well as our businesses can become better.