22 August 2012

IPO's - Facebook illustrates risks

The odds in Inititial Public Offerings (IPO's) are all too often stacked against the buyers. Insiders and the promoters of the IPO are interested in obtaining a high price and have a heavy propaganda machine on their side - despite efforts by the regulators to curtail one-sided advertising. There is insufficient protection against the insiders selling too early and investors are advised to favor IPO's where the majority - ideally all - of the funds raised goes to the company. The sale of a large stake by an early investor in Facebook illustrates (CNBC) the controversy surrounding IPO's.

21 August 2012

Who really owns your Gold?

Many investors may think that by holding physical gold in their portfolios they are to a certain extent hedged against the loss of purchasing power that is experienced by all major currencies. But make no mistake, only physical gold that you hold in a vault that is controlled by you or in some other safe place is really gold that you can count on when the proverbial s**t hits the fan. Unallocated gold or pieces of paper that represent a claim on gold ('Structured' products, derivatives or ETF's) are nothing else but some bank's or fund manager's obligation and as such only as good as the standing of that institution. If they are insolvent you are left with nothing else than a piece of paper and have to join the queue of creditors.

A simple asset-allocation system

An article in the Financial Times proposes a simple-to-use asset-allocation system. But as always the devil is in the detail as it requires the investor to make quite precise estimates for the expected returns in the various asset classes. In an ideal world the investor would just pick the asset with the highest expected return. But even after taking account of this deficiency the model still is useful as it forces the investor to at least try to quantify his expectations. This discipline will protect him from being over-exposed in any asset class and help to avoid being overly optimistic or pessimistic at major turning points in the markets.

Another Warning about the safety of your assets

Most investors are unaware of the arcane details of bankruptcy law and related aspects of investor protection. But this warning illustrates that politicians and regulators seem to be less concerned with the well-being of investors and have decided to focus on the interests of the finance lobby.

19 August 2012

Even arbitration no protection for investors

This case demonstrates that investors should not rely on securities arbitration for his protection as providers of financial services use every legal option to delay or void such an award. The reader can form his own judgement about the morality of such conduct.

16 August 2012

Are your assets in safe hands?

Most financial assets are these days represented by bits on some faraway computer. In addition, the owner relies on some third party - a bank or fund manager in most instances - for the safekeeping of his 'bits' (wealth). When new court judgements make this remote control even less secure it represents an extra layer of risk that all investors have to guard against.

15 August 2012

How to spot an investment scam

An suspected investment scam involving the sale of derivatives linked to gold has been uncovered in Poland (Wall Street Journal). Based on preliminary evidence the following lessons can be learned: (1) Always check out the credentials of senior management, (2) Do you really understand the investment? In this case I doubt that many - if any - of the investors understood the difference between physical gold and derivatives, (3) Unusual and high marketing expenditures.

10 August 2012

Are Stock Markets rigged?

The controversy over 'algorithmic' and high-frequency trading rumbles on and on. While experts and regulators are unable to agree the ordinary investor is well-advised to tread with caution when investing in the stock market.