31 July 2013

Option Writing - treat with caution

Buying shares and writing options against them may appear to offer an escape from meagre yields in bond and money markets but investors should be careful. This strategy and those involving implicit options (like reverse convertible bonds) should not be used in a mechanical fashion without any attention to the market direction. There is a time for selling volatility and there is a time when it should be avoided. Selling any option always carries the risk of major loss should the investor misjudge the overall price trend of the underlying instrument.

30 July 2013

Should you check the lifestyle of your Financial Adviser?

Two recent cases involving multi-million investment scams have both highlighted the expensive lifestyles of the main promoters. This raises the question if investors would be well advised to conduct a background check on the personal life of any current or prospective investment adviser. I would tend to say yes as the time when you could rely on self-restraint as demonstrated by the legendary old school Swiss Private Banker are long gone. Ostentatious lifestyles that involve million-dollar birthday parties where rock stars serenade the guests and over-the-top spending on art or property should always flash red warning lights.
See also 'Long jail terms for three fraudsters in £85 million boiler room scam' (Daily Telegraph)

29 July 2013

2 Problems with Longterm Investment Strategy

While investors are well advised to follow an investment strategy that focuses on getting the asset allocation right in the long-term they face two major problems when executing it. Sticking to such a plan over many years, even decades, requires an amount of patience and self-discipline that most individuals lack. At the same time advisors and commentators often neglect to mention that one aspect that investors can control are costs and fees that can erode a substantial portion of investment returns. If neglected such costs can add up to an amount equal to the net gains accumulated in a portfolio over a period of 20 or 30 years.

28 July 2013

Sceptic recommends small weighting in Gold

Most Economists are sceptical when it comes to the merits of investing in Gold. So it is a small surprise that Gregory Mankiw comes to the conclusion that a small weighting of Gold in an investment portfolio would not be such a bad idea. (New York Times)