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Tutorial Essay BSc Banking and International FinanceA Fool and His Money The Odyssey of an average investorJohn Rothchild is the money hungry "average investor" who stumbles from stocks to options to bonds and then ends up with this cautionary tale of the stock markets. The twenty-four tips he emphasises within this tale are based on his own experiences during his quest to become rich. The six tips discussed below show some of the different aspects of the stock trading experience. Useful Tip Number Five is "One man's cash is another man's correction". Rothchild has advised this tip especially as its implication is twofold. Firstly, it suggests that those investors who had the "courage to hold" during this rising market had their stock coming "back Strong" from the low point in 1 to earn the "cash". Those who weren't patient lost the chance to see their stock rising in value are to learn from this and make a "correction" in the future, hence the name of the chapter "The lessons of history". However, it can also mean that taking risks in such trading have two opposite outcomes and that we need to accept any either. The essence of this advice is to learn from mistakes and to be aware of risks involved.
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Barring in mind that a brokers earnings are also based on commission, it is important to remember they would be highly persuasive, hence, Useful Tip Number Eight "The first thing the broker recommends will make him the highest commission" is advised by Rothchild. Their persuasiveness is proven as Rothchild was being cautious in his trading when the broker hinted "about his new red Porsche and his decision to take more chances and live for today". The tip also hints it is important to remain independent in making trading decisions and to do personal research like Rothchild did at the "library" as the broker is mainly looking for his own good. Rothchild abides by his own advice as implied by the chapters title "Shopping for the broker". He had "several previous brokers" such as one "recommended by a friend", his "brother-in-laws" and "Mr Bermont" which emphasises his tip of persevering when trading.Useful Tip Number 14 "Don't continue losing money just to keep your broker happy" has a similar implication to the previous i.e. to be independent and not to give in to their persuasive act, but from a different perspective. This tip is issued to emphasise that any "relationship" between brokers and clients is not as important as your money. Any relation built by the broker would be, in affect, with the client's money. Generally in such trading June is a popular month to buy and October is a popular month to sell, but his first tip "Never buy the June call nor sell the October put simultaneously, unless you know what they are" advises differently. It highlights the importance of being precautious as well as being more certain about the company whose shares are to be bought. However a magazine writer also tells us, "Even if you try to say something 100 percent truthful about the stock market, it's impossible", which implies it is difficult to be certain. This tip is again derived from his unfortunate experience. On some advisors "reassurance" Rothchild "went ahead and bought the Junes and sold the Octobers" but ended up losing "$6,000 in the process". So the second suggestion from this tip is not to completely trust the brokers for the same reasons as tip number eight.Useful tip number thirteen can be interpreted as some general advice on how to handle the options. "Buy a call or sell a put you want things to go up" means to buy the right to buy the stock index or sell the right to sell the stock index so that what you have bought rises in value for you to make a profit."Sell a call or buy a put you want things to go down" means to sell the right to buy the stock index or to buy the right to sell the stock index at times when its value will decline. Like the previous tip, this one is also screaming out to be on the safe side during trading and to be more precautious.Rothchild demonstrates his strong moral values on the twenty-first tip, "The better a stock does, the more ethical you feel for not having bought it". He refers to the stock of those firms whose products are neither righteous nor honourable. Although he was tempted to buy shares of the high prospect tobacco company 'Loews', he "gave up doubling" his money, which he hopes "the victims of smoking appreciate". By giving up a huge profit making opportunity just to not support the smoking industry emphasises this tip's significance. He thought of such ethical action as a "subjunctive contribution". However this dilemma caused him to contradict his view as he bought options instead. This was however thought as " one step removed from a stock". The message in this tip was to make clear not to completely give up profitable opportunities and also not to completely ignore ethics. In conclusion we can say that lessons can be drawn from this experience, although Rothchild does not mention this in his conclusion. He has, however, mentioned during the text that "experience can be an expensive teacher" and that the readers are saved from such an "expense". The advices are on the basis of what should not be done. Also, the advice he has derived is in a general form so that it can be applicable to the reader. They are to a large extent varied from each another, which extends its helpfulness. We can evaluate that the level of their usefulness and importance is similar.The tips discussed, analysed and evaluated above puts across five different messages. Firstly, stay aware of the stock brokers main intentions. Secondly, stay less reliant on brokers when making decisions. Thirdly, be precautious of the highs and lows the stock market can get into. Fourthly, be risk averse and finally ethics are important. The advice that is not stated but can be read in between the lines is to persevere. Rothchild made loses after loses, hired broker after broker, read reports after reports and even went as far as gaining advice from astrologers. This seems to the only advice based on what should be done.
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