your investments work, the clear answer is ... yes.
During a recent conversation with an old friend, I made the mistake of asking him how he was doing in the market. Without missing a beat, here is what he said:
“I recently met with my CFP, who also is a CIC and CLU, and associated with an FCM. He recommended that I stay the course on my LEAPS, look for the exit on my CDO’s, and attempt to marginalize my
MBS losses. Overall, to minimize my CGT and to boost my EPS ratios, he's urging me to put more into ETF’s and to consider making a significant shift into EU-backed CFD’s”.
Translation:
“I’m not really sure what broker wants me to do. But I don’t want to look an idiot. So I’m going to swallow hard, pretend that I really understand, prepare for the worst and hope for the best.”
In the dog-eat-dog world of Wall Street banks, the quest to capture more your investment dollars is akin to the arms race. Everyone is trying to invent a better
mousetrap. This has resulted in the development of extremely complex hybrid securities one piled on top the other, whose risk and return properties aren’t well understood.
These incomprehensible instruments were not set up to address fundamental economic problems. Rather, they are schemes to attract more and more of your investment dollars. More disturbing, is that it appears that many of these “innovations” were not created to build client wealth, but for the sake of the new brokerage fees they generate.
The profits of the investment banks promoting these "innovative" investment offerings
have been astronomical. As long as everyone was making money, there were few complaints. Lawmakers and regulators have kept their hands off for decades to encourage financial innovation. But with the collapse of Bear Strearns, and the likelihood that other institutions may follow, the government is starting to take a closer look. Unfortunately, for the small investor, and the economy as a whole, it may be too little too late.
Everyone wants transparency. But regulators can’t regulate what they don't understand. And if the regulators are at bamboozled, how can investors be expected to crack the code? I'm in the business of investing, and frequently, I'm at a loss to explain how some of the newer financial instruments really work.
Transparency and disclosures are worthless as long as investment banks and their executives are intent on using a sleight of hand. Despite popular belief, there was plenty of disclosure about what Enron was doing. The problem was that it was so
complicated that no one understood it, least of all the investors and regulators.
Wall Street bankers can’t be trusted to make things clear. It’s not in their best interest. Because if you understood what they were really doing with your money and real risks involved, you'd probably balk at the investment.
Simple is always better. As any mechanic will tell you, more moving parts means a greater chance for a breakdown. The same commonsense applies to investing.
No one would argue the investment acumen and wizardry of Warren Buffet. As the "Whiz" once observed; “If I can’t understand, they don’t want me to understand it.”
Translation:
If you don’t get it, and you can't spell it, don’t do it!
To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.
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