Don’t Swim Naked!
“In the business world, the rear-view mirror is always clearer than the windshield.” - Warren Buffett
There are some half a dozen inquiries into different aspects of the financial services industry going on at the moment, the most public being that into the collapse of Storm Financial Timbercorp, Opes Prime et al. Each to greater or less degree is looking in the rear-view mirror divining what went wrong in an effort to ensure there is no repeat. Being a cynic about such things, Financial Guru subscribes to the old saying about governments and inquiries “Never hold an inquiry unless you know the outcome.” A lot of this more to do with being seen to be doing something and with finding a scapegoat, or justifying some already decided course of action than will actually achieving a meaningful result.
Will these inquiries do any good? Hopefully something good will turn up, but in the case of Storm, Opes and the rest, it is likely the result will be more regulation that will look good but add nothing to protecting investors.
The problem is always the same. There are always people out there dreaming up schemes that won’t work, there are always boundary pushers who will give anything a go as long as it’s with other people’s money, and there will always be people who want to believe that they can get rich quick, that this time it is different or who just want to believe whatever outlandish story is being told. Its human nature, and no laws, rules or inquiries will ever stop that.
Daily there are more and more complex products being developed by companies seeking an edge, and being delivered to a public that think they must be good simply because they are so complex! As Warren Buffet also says “Only when the tide goes out do you discover who’s been swimming naked.” There have been many naked people over the last couple of years.
The stockmarket is now in recovery phase, even though October will probably be a negative month if previous Octobers are any guide. In just a few short years, there will be a new batch of advisers and product designers out there who have only seen rising markets and have yet to learn the lessons of history. A new batch of rip off merchants, who sit on the fringe of all industries where there is money involved, will think up new variations of the old schemes and launch them on the unsuspecting investor. The cycle will start all over again.
There is only one real defence, being street smart and learning the lessons of history.
· If it sounds too good to be true, it probably is.
· If you can’t understand it, don’t do it;
· Don’t think the good times will never end, because one day they will; and
· If the ‘opportunity’ is limited to a select group, make sure you are not one of them.
But that is the negative side. The positive is that there are more and more, honest, better educated and experienced advisers who can be trusted to give proper and timely advice. Failing to get advice can be more costly than getting the wrong advice. Get a referral from a satisfied friend and don’t be afraid to get a second opinion if you are not comfortable with what you are told.
POSTED: 10-Oct-2009