Spotlight: The Hollywood Principle of Investing

Until last year I maintained two demat accounts. It wasn’t intentional, but because of laziness, I had been procrastinating the task of consolidating all my holdings into a single account. So, when I called the old broker to reveal that I am closing the account and moving all my stocks to a different demat account, he wasn’t pleased. Grudgingly he gave me the form to be filled and made one last attempt to hold me back. But I had already made up my mind.

Of course, the relationship manager at the new brokerage house was very happy to know that I was going to use his services exclusively for buying and selling stocks. So, when he offered to come to my house and collect the documents, I felt I was troubling him unnecessarily for an administrative work. But he insisted for a personal meeting. Next day when he showed up at my doorstep it was evident that collecting the documents was just an excuse.

His real intention was to sell me one of his “star performing” investment products. Knowingly or unknowingly he was deploying a powerful weapon of persuasion on me. Reciprocity. Because he took the trouble to come all the way to my house, I was more likely to say yes to his sales pitch to reciprocate the favour.

Even after knowing his intentions, it took great efforts to decline his request. Although he left without making a sale, he did succeed in leaving a lump of guilt in my heart for not returning his favour. From that day, I swore to myself – when it comes to dealing with relationship managers and brokers, use The Hollywood Principle.

The Hollywood studios and the agents get thousands of calls from amateur artists and this is what most agents tell the new Hollywood aspirants – “Don’t call us, we’ll call you.” This is a response most people get after auditioning for a role in a Hollywood movie. And not just in Hollywood, “Don’t call us…” is a stereotypical request from a hiring organisation to a potential candidate, suggesting that the candidate will not be hired.

In investing, that’s the attitude you need to have with your broker. You need to tell him – “Don’t call me, I’ll call you when I need you.” Your broker may have the best of intentions but there is a serious misalignment between the fundamental incentives of a brokerage firm and what’s best for a small investor. I don’t need to remind you that a broker makes money only when his clients transact. If your stock goes up by 10x in few years, the only way your broker can make money is by convincing you to sell your 10-bagger stock.

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