Choosing a savvy broker is like finding a good mechanic: They seem few and far between. And alas, the Yellow Pages offer no ''Mr. Good Stocks'' listing for skilled brokers.
So word of mouth may be the best initial approach. Ask friends who are avid investors, talk to your lawyer, accountant, or banker. Also, many cities now have cable television programs where local brokers chat about stocks they're recommending. And some brokerages sponsor public seminars. From either source, you may find a ''financial consultant'' or ''investment counselor'' (as brokers are wont to be called) whom you can understand and trust.
If that path yields slim returns, try shopping around. But before you trot off to your nearest brokerage firm, think through your investment objectives.
''Be clear on what you want,'' advises Dr. James B. Cloonan, president of the American Association of Individual Investors, Chicago. ''Vague objectives, such as 'I want to make as much money as soon as I can,' won't do.''
Know how much risk you're willing to take: Can you afford to lose all, some, or none of your capital? Do you want income? (That is, are you interested in safe, steady dividend payments and don't mind if the stock itself stays put?) Do you want growth stocks (little or no dividends, but a high potential for a stock itself to appreciate)? Is the money for college or a new car? Do you need it now , or years hence?
If you know what you want, then the broker can serve you better. The likelihood of costly misunderstandings is reduced. And you won't be tempted by stocks that don't meet your needs. ''When your broker calls, you've got to be able to say 'no' when he offers you a speculative stock,'' Dr. Cloonan says.
On a recent morning, one would-be investor made the rounds at a few Boston brokerage houses. Our intrepid stock player, let's call him Jose Bigplay, had never been in the market before but wanted to venture forth with $2,000 to $3, 000. He was looking for capital gains - growth stocks - but was willing to wait a year or two for the return.
A nice man at Goldman, Sachs & Co. patiently listened to Jose's investment patter. But it seems that Goldman, Sachs does most of its business with institutions. When Jose revealed the size of his nest egg, the broker gently pointed out, ''Generally, our individual accounts begin at half a million.''
Exit Jose Smallpotatoes.
Next our neophyte investor knocks on the door at Dean Witter Reynolds. An eager young broker tells him that $3,000 is ''a little low,'' compared with most of his clients; nonetheless, within five minutes he's angling for Jose Bigplay's signature on a form to open an account. He is rebuffed with an explanation that Jose is still at the window-shopping stage. His remarks, however, are being judged against what several other brokers say. So the Dean Witter broker suggests Jose put his wad into a growth stock. He pulls out an analyst's report which recommends a company that produces machines for making semiconductors. ''Hold it six months and it should appreciate 20 to 30 percent,'' he counsels.
Jose asks for the commission-rate schedule, as he does at each brokerage, to compare fees. (Every time you buy or sell a stock, a commisson fee is paid.) Jose thanks the Dean Witter man and moves on to several more brokerages.
Some of the experts recommend calling the manager ahead of time, especially if one already has a special type of trading in mind - such as options hedging. Then the manager can select the broker he thinks will match your needs. Otherwise, you're liable to get whoever happens to be the ''broker of the day'' - the one who handles walk-in customers. But others advise that it's more important to find someone you can talk to and trust. The manager is not necessarily the best one for making that distinction.
Jose Bigplay found an array of talent, experience, and advice from ''brokers of the day.'' A middle-aged broker at E. F. Hutton & Co. told him: ''There are two reasons to play the stock market: to make money and have fun. But $3,000, that's almost too little to have fun.''
His advice was to put the money in a mutual fund. The diversity of stocks in a fund offers less risk and protects capital. But funds aren't much fun. The Hutton broker suggested that to enjoy the market, one has to have about $50,000, to diversify holdings enough to offset the riskier investments. But if Jose considers his $3,000 expendable, he might still have some ''fun,'' the broker says.
At Moseley, Hallgarten, Estabrook & Weeden, a local firm, a 30-year veteran told Jose he would be glad to work with him to develop a portfolio. He suggested starting with a few shares of a blue-chip (quality) stock like IBM.
As an investor, once you settle on ''Mr. Good Stocks'' and open an account, most of your contact will be over the phone. If he holds the stocks you buy, when they're sold later it saves you the trouble of dropping them off at his office (which must be done within five days of the sale). On the other hand, if you keep your stocks, you are more likely to get all the company reports and proxies. When the brokerage holds a stock, such information is not always forwarded - especially if you have a small account.
There is another advantage to keeping your portfolio tucked in your own safe deposit box. If ''Mr. Good Stocks'' turns out to be ''Mr. Poor Pickens,'' it's less embarrassing to fire him over the phone than to retrieve your stocks and drop him in person. In any case, it's probably best to give your broker a year to prove himself.
As a matter of etiquette, it is poor form, especially if your account is small, to call your broker constantly for price quotes and long-winded chats about the economy. He will send you investment reports on various companies, probably without prompting. But remember, the broker makes most of his living on the phone, so it isn't fair to tie him up.
A free pamphlet, ''The more serious you are as an investor, the more questions you have to ask,'' provides further information on basic stock investment. It is available from local Shearson Lehman/American Express offices or by writing to the brokerage at the Information and Education Center, PO Box 4801, Huntington Station, NY 11746.