Ask Colin

The advice offered by some brokers is not always accurate.  

This was not really a question, but it raises important issues, so I would like to respond.

Hindsight is a wonderful thing. If I could get a broker to take my orders on hindsight, I would be very rich. Seriously, predicting the future is impossible. All any of us can do is to assess value or prospects of a company and so try to invest where the odds seem to be in our favour.

Your detailed question involved a company called harris Scarfe.

Twelve months ago, Harris Scarfe would have looked quite good on fundamentals. I do not have the data, but my guess is that its historical dividend yield was high and its historical PE ration quite low. So, it would have looked good value. That is, unless you could see the problems the company was running into. I gather in this case that there was fraud involved, so it seems to have been hidden from everyone. I therefore think that you have unfairly blamed the broker for what is effectively failure to know the unknown.

As a technical analyst and trader, Harris Scarfe was on my watch list as a potential buy less that twelve months ago. The reason why I did not buy it was evident on the chart of its share price. Harris Scarfe had seen a long decline and was levelling out in 2000. By mid to late 2000, it had started to look like an ascending triangle, which is a bullish reversal pattern. However, it is never complete and a buy signal given until we get an upward breakout. So, like the broker, I was interested in Harrus Scarfe, but awaiting a signal.

In the end the pattern failed, so I never bought it. This is the real advantage of charts. The fundamental news came only a month or so ago, but someone knew late last year and that was signalled on the chart.

Finally, you said it was an Adelaide broker. This COULD raise another issue. As you should know, brokers often sponsor companies on the ASX. I have no idea whether your broker sponsored Harris Scarfe, but it is a question that an investor should always ask if seeking investment advice from a broker, as apart from taking the buy decision alone.