16 November 2011

Thinking of buying 'Structured Products'?

If you are thinking of buying a so-called 'structured' investment product you could do worse than having a look at this court judgement. It deals with the case of a rich individual and his experience with 'barrier' notes or 'reverse' convertible notes that he bought from one of the major providers of private banking services. Readers should remember that there is no free lunch in the investment world. If they are not able to dissect the intricate mathematics behind the construction of such investment vehicles they are at a disadvantage vis-a-vis the providers and their salesmen. Even the experts often disagree about the correct valuation of the options that are packaged deep inside and as a consequence a lay investor stands no chance to value such securities correctly or - even more importantly - assess the inherent risk that he is asked to assume.