Buy and Hold Is Dead: How to Make Money and Control Risk in Any Market

Chapter 4. Golden Handcuffs

Faulting brokerage firms for producing a functional recurring revenue model is slightly misplaced, as I have already shown. A recurring revenue model is arguably the best-equipped method of sustaining revenue and cash flow in a capitalistic economy. Growth companies may not see it this way, because revenue is consistent, often negotiated, and simply trickles in slowly. However, recurring revenue models have far less assumed risk in times of economic weakness and therefore they add significant value over time. International Business Machines is a great example. In 2008, while most companies were struggling to increase sales, or merely sustain sales in extreme cases, IBM's services division, a division whose principle is recurring revenues, fared comparably well. Then, in 2009, the same thing happened. These same results seemed lackluster during the boom periods, but they proved to be firmly grounded as the economy turned.

Faulting big brokers for pressing a recurring revenue model is unfounded from a corporate perspective. Yet clients must recognize these practices because they affect the trickle-down policy that passes through to their financial advisors and ultimately to their portfolios as well. That is where the negative influence exists. Unfortunately for the clients of these big brokers, they must wear two separate hats when evaluating their housed investments and the recommendations associated with them. The first hat should be an objective one, ...