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you should honor your friendship.

that doesn't necessarily mean all of your investment money needs to funnel through your friend....leave a token amount, or, put any new money into a low cost brokerage.


We felt the same way. We had a broker we had used for several years, we knew them on a first name basis (I don't know if that was unusual back then), and we were content.

But one day I wanted to buy AOL and he tried to talk me out of it. This was in early 1995, when they were pretty unknown. Well, I happened to work in the building next to the Chicago Tribune, which was one of the early (partial) owners, and was invited for a tour (very unimpressive) and for my radio station to become a media partner. Which I did, and after about a month, I was hooked. I typed something in, people could see it (within the AOL walls, of course) and could make comments! I couldn't imagine everyone not getting hooked, so I made the call.

He would buy it if I insisted, but he really didn't think it was a good idea. (He had a model portfolio and tried to keep his clients in some sort of organized line so he wouldn't have to be thinking about all these crazy outliers that people kept talking to him about. He was good, but he was bad, if you see what I mean.)

Anyway, he bought a couple hundred shares at my insistence, but I opened an account at Schwab and bought a couple hundred on my own. Wow, I paid $29 at Schwab and something like $100 with Dean Witter. Same stock, obviously. So I tried something else: I bought 200 Cisco through him and 200 Cisco through Schwab within minutes of each other, and got the same fill price, and was back to the $100 fee vs. the $29 fee. So I ended up with "more" Cisco for the same price at Schwab, because the fee was less. (More Cisco turned into MORE Cisco as it ran up and split, over and over. That extra $70 turned into several hundred bucks later.)

So I talked with Mrs. Goofy, and decided we would do our "new" investing through Schwab, but leave our account with "our friend." The last straw came when I was exiting Cisco, which had run up tremendously, and the bill from Schwab was another $29 (maybe it was $50, I don't really remember.) But I do remember that I paid $800 for the trade at Dean Witter, and that was the end (they charged by the size of the trade.) Why should Dean Witter get part of my 'winnings' just because it ran up? Would they give me a rebate if it went down? I think not. Whose money was at risk here, anyway?

I had Schwab sweep everything they could, I had to sell the proprietary Dean Witter funds that DW had put us in (which we unspectacular, to say the least) and I've been doing it myself ever since.

I'll always remember when I called to sell the AOL and said "Sell all of it". After that substantial run, his assistant (his nephew, actually) said to me "Don't you want to keep some of it? It's done very well." And I said "No, I want to dump it all. It's too high, it's crazy, it's time to get out."

He started telling me about taxes and I was polite but firm. I got out at prices over $100, after having a cost basis of something like $4 a share. Yes, taxes killed me, except staying with it would have killed me worse.

Anyway, I hold no ill for MSDW or other high-cost brokerages; they have a business to run and if a lot of hand-holding is required I suppose they have their place. If, on the other hand, you pay attention, do some occasional reading (not necessarily the fine print back on page 98 of some annual report) and enjoy it, there is no reason to stick with someone who charges 10 times the price for 2 times the service.

Schwab is now down to $9 for a trade, and I have no idea what Morgan Stanley (Dean Witter) now charges. Schwab offers a ton of research, keeps track of my cost basis, reinvests dividends without charge and more. (There are other low-cost brokers which do the same; I'm not pimping for Schwab here, it just happens to be who I got hooked up with and who I am happy with. I also like that they have a local office where I can do certain things with a human being, if necessary.)

Just my opinion of course, but also my experience.
 
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