As we navigate and muddle through the calamity of the Corona Virus black swan (an unforeseen, unexpected event), we must assess (1) where our stock portfolio value is at and (2) why. Is the value lost acceptable considering the black swan or is the loss in value because of some other reason?
Stockbrokers and Financial Advisors who gave advice to customers may tell their customers that the black swan was the sole reason for the decimation of their stock portfolio.
But as an attorney for customers of Stockbrokers and Financial Advisors, I must ask was the Corona Virus Black Swan really the sole reason for the decimation of the stock portfolio?
MAYBE MAYBE NOT!
Many investors, particularly elderly investors on fixed income, request investment products that generate a higher rate of return than a bank savings account, a money market account, a bond or even a dividend earning common stock.
Stockbrokers often try to accommodate the needs of such an investor by recommending investments that generate those higher rates of return either through a higher interest rate or a higher yielding common stock dividend.
These recommendations, however, are not always wise or prudent. In fact, frequently these recommendations are unsuitable and reckless rising to stockbroker negligence.
For example, many stockbrokers have recommended their customers invest in the energy sector.
This sector includes exploration and production, refineries, wholesale, retail and many other components of the energy sector.
The energy sector tends to have a higher rate of return on an investment. A higher interest rate of return or a higher dividend yield. But a higher rate of return comes with a much higher degree of risk. This high degree of risk became readily apparent when the entire energy sector collapsed in March 2020 causing widespread, deep losses for anyone who was invested in the oil and gas industry.
Although a tiny fraction of an investor stock portfolio may have been appropriate, any significant, over concentrated position would be tantamount to negligence and lead to a conclusion of an unsuitable positioned portfolio.
Many investment advisors placed customers, particularly elderly customers, in oil and gas without assessing the risk of the oil and gas sector and without informing the customer of the high level of risk.
As we have seen, BP Petroleum, Marathon Oil, Chevron, Exxon Mobil and most oil and gas companies although were paying an attractive dividend, the high degree of risk has become readily apparent with the share prices crashing downward.
Such a devastating loss of value in a portfolio is unwarranted if a financial advisor was prudent and careful in his or her recommendations.
If you or someone you know has lost 30%, 40% or more of value in a portfolio because of a over concentration of funds in the energy sector, you may have a cause of action and be able to recover your losses from your investment advisor or the broker dealer he or she works for through a FINRA (Financial Industry Regulatory Authority) claim.
Please email me or call me for an initial consultation to determine whether you should proceed with a FINRA claim against your financial advisor.