Investment losses in stocks and whether a cause of action against a broker or financial advisor for stock market losses exists is a very fact sensitive inquiry. Consideration of the type of stock at issue as well as the investors financial profile must be made in order to determine whether a cause of action against a broker for stock market losses exists.
Stocks are generally the most commonly held security and asset class in customer's investment portfolios. Stocks are also generally considered more volatile and riskier than other asset classes such as bonds. This extremely broad generalization can obviously differ depending on the stock owned by the customer. Stocks issued by blue chip multinational companies, considered staples of the markets pose less risk than other stocks such as:
- Emerging Market Stocks - Stocks in developing markets such as BRIC Brazil, Russia, India, and China.
- Penny Stocks - made famous by the Wolf of Wall Street, the old pink sheet stocks are listed as extremely risky and generally not trading on any market exchanges listed at below 5 a share.
- Mega Cap v Small Cap - small cap stocks are companies listed on a stock exchange with a smaller market capitalization generally between $300 million to $2 billion.
How much stock is suitable for an individual investor? As investors age, most are advised to allocate a higher percentage of their assets into bonds. The old adage 60-40 or 60 years old 60% allocated into fixed income securities such as municipal bonds with 40% allocated into stocks is model adhered to by many financial advisors. The percentage of a client's portfolio allocated into stocks may be much higher, depending on a number of factors including:
- Net Worth - the more money an investor has, the more risk an investor can take. An investor with a higher net worth may be able to allocate more assets into risk market sectors such as stocks and options.
- Retirement - If an investor is retired, the need to preserve and maintain hard earned money for retirement is obviously greater. Here, stock picking and investing into stocks as opposed to bonds, is a much bigger red flag for potential investor fraud and potential broker mismanagement.
- Risk Tolerance - an investor may indicate when opening an account that they are willing to speculate in order to achieve their investment objectives.
- Investment objectives - Investors looking for growth and capital appreciation, and who indicate this on their new account forms, would make stocks and investing in different stocks a more suitable investment. If an investor indicates safety of principal as a primary investment objective, then stocks would not be considered a suitable investment idea.
- Discretionary Account - how the stock is purchased is essential in determining whether a claim for investment fraud can be sustained. An investor making unsolicited purchases, or entering investment orders on their own behalf in an investment account, will most likely not have a cause of action against their broker or investment advisor. If the account is managed for a fee, also known as a wrap account, or if the broker was involved in the decision to purchase the stock, the potential for a cause of action against the broker for investment fraud is much higher.
Stocks have seen explosive triple digit growth in a span of a year, with most analysts calling for more. Brokers have echoed the call-in stocks in various markets and sectors. Buy ratings are out across the board for stocks that have enjoyed record growth. Amazon, for instance, which was trading at around 950 a share nearly a year ago, recently hit 1950 a share, doubling its market value. The stock still has a strong buy rating from almost every major brokerage firm. NVIDIA, a company that started off in gaming and also has transitioned to cryptocurrency and artificial intelligence, has increased nearly 100 points in a span of a year. Despite these record gains, the company still has a "double buy" recommendation from Wells Fargo.
If there is one thing that financial history has taught. If anything in the stock market is absolutely certain. It is that all things fall apart. Bubbles burst. Markets crash. The only question is not if, but when. Truly spectacular market crashes in 1929, 1987 and 2008 are the most prominent examples of stock market meltdowns. Presently, equity markets are in one of the greatest bull runs in US financial history. Since March 9, 2009 up to January 26, 2018, the Dow Jones has sustained a 306.5% gain, hitting an all-time high of 26,616.71 on the same day. The ten-year rally since March 2009 has created $18 trillion in wealth.
While 2017 and 2018 have thus far been banner years for stocks, there have been some notable losers. Investing in these sectors and stocks does not grant an automatic attachment of liability or a claim for stock broker fraud against the broker and broker dealer for investment fraud. Still, market loss is the cornerstone of any claim for investment abuse, and something an investor should discuss with a seasoned securities lawyer. Some of the most notable Stock Market losers have been:
- Losses in Social Media stocks - Facebook and Snap Chat had monster losses in trading in 2018.
- Stocks connected to Commodities such Oil and Natural Gas and Gold Stocks - Hess and Chesapeake have recovered some of their bigger losses. Stocks connected to supply and transportation of natural gas such as Teekay and Transocean have sustained similar mass losses. Gold Stocks have plummeted.
- Biotech stocks.
- Financial stocks - Wells Fargo and Deutsche Bank sustained massive losses.
An investor may have a cause of action in connection with any stock market losses. As can be discerned from the information above, whether an investor can file a claim for stock losses can only be ascertained by looking at the type of stock involved as well as the investors financial profile.
Contact the attorneys at Lubiner, Schmidt & Palumbo. We may be able to help you recoup your stock market losses.