How to determine if you should be your own broker

Perhaps you dabble in stocks by reading the business section of your local newspaper, or closely follow the market on the internet.You may have begun to think that you should be managing some of your own capital through a brokerage account on your own. However, you need to examine if this is a wise move. There are some questions to ask yourself before making that very important decision. Here is what you need to know about how to determine if you should be your own broker-

• Do you have the knowledge you need for investing, on your own? To see what you answer to this question will be try this exercise- grab a piece of paper and write down the investment principles by which you operate your portfolio,and the characteristics you look for in the stocks you buy. The point of this exercise is that if you had to think about your answer, you may be making a mistake by managing your own investments. This can indicate that you lack a structural framework that allows you to remain emotionally detached from your investments.This detachment is vital if you are to make intelligent decisions that are based upon rational analysis of a business, rather than emotional reactions, to market changes in market prices. On the other hand, if you are truly an investor this exercise should take no effort or time, because you think from a business perspective.
• Can you find aggressive accounting-This is important since many new investors don't realize that the reported net income and earnings per share, in a company's annual report are, at best, a rough estimate. This is because even the simplest business, with the cleanest balance sheet, has numerous estimations and assumptions that management must make. This can include the percentage of customers that aren't likely to pay their bill, the appropriate rate of depreciation on buildings and machinery, the estimated level of product returns, future returns on pension assets and many other influencing factors. The downside of this is that unscrupulous management can skew the numbers to look better, than they really are by utilizing aggressive accounting techniques. Knowing how to spot these is vital to protecting yourself. The bottom line is that if you can't spot it, you shouldn't be investing your own capital, without the assistance of a qualified professional.
• Do you understand the fundamentals of the business-It may surprise you to learn that many investors are not even aware of how their company makes money. Failing to understand how your chosen investment business makes money, can be a fatal flaw in your investing. Some of the most serious investment losses, resulted from investors being unaware of what their chosen investment business actually did.If you cannot clearly state and understand what the business is, then you are better relying on someone, who's job it is to do that.
• Are you emotionally vulnerable to changes in market price? It is ironic that stocks are one of the few things that people want fewer of when they get cheaper. In every other areas of our life, we typically are overjoyed at a sale whether it is on hamburgers or vacations or automobiles. As equities get less expense, many investors typically flee from them. This lead uninformed investors to say things like, I'll wait till the price stabilizes and starts to rise again." This makes no sense. Financial experts advise that if you are unable to watch your holdings fall by fifty percent or more, without panicking or liquidating your positions, you should not be managing your own investments without professional help.