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high risk investments
Through a Dangerous Door
Life in the 21st century is more connected and accessible than ever before. The Internet has brought whole new worlds of opportunity that would have been all but unimaginable before.
New opportunities have also created new pitfalls. Online stockbrokers have opened new doors for small-time traders, racing to cut commissions and expand access to trading instruments—even ever riskier ones.
Traditionally, trading features such as derivatives and margin trading were reserved for experienced investors who had money to lose. New online trading platforms have been pushing down the barriers to entry, allowing traders with just a few thousand dollars to their name to make heavily-leveraged speculative bets.
Our investment philosophy centers on traditional equity investing. We believe in owning pieces of real companies that have physical property and actual products. This provides no guarantees for us; equity investments are considered volatile, and they risk loss if a company disappears from the map.
Even so, these risks are small potatoes compared to what investors may get themselves into when they start playing around with complicated investment vehicles. Derivative investments can very easily be wiped out, and margin traders may find themselves owing more money than they put in to begin with. Traders beware!
At some point, it seems frankly irresponsible to turn inexperienced traders loose with such dangerous financial instruments. (In June, tragedy followed when a young trader misread his online trading statement and thought he was $700,000 in debt.) Online platforms have opened some doors that would have been best left closed.
Our goal here at 228Main.com is to make investing more accessible, more transparent, and more understandable for our clients. Part of that mission is making sure that we are not steering clients into inappropriate investments, a protection that do-it-yourselfers trading online lack.
We do not believe our role as advisors is to play “high priest” and tell you that we cannot be bothered to explain things to laypeople: we want to lay everything out on the table and make sure that our clients understand what they are getting into.
Clients, if you have any questions or concerns please call or email us.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Stock investing includes risks, including fluctuating prices and loss of principal.
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Expensive Lessons Threaten Teacher Retirements
An amazing tale of mistakes and worse in the Omaha Public School (OPS) pension fund has been uncovered by the Omaha World-Herald. According to the paper, the fund went from being one of the best-performing funds in the nation to one of the worst.
The most surprising thing? The same issues you and we face in managing our own investments caused a lot of the grief.
• The fund sold stocks heavily at the bottom of the financial crisis, in 2008 and 2009, dramatically reducing its holdings at the wrong time.
• Decision makers sought ways to achieve above average returns without market volatility—almost always a tale too good to be true.
• The risks of alternative investments were poorly understood, not surprisingly. Mumbai real estate, international shipping, Kazakhstan oil companies and distressed housing in Florida? (At least they didn’t buy swampland, as far as we know.)
• When stocks rebounded, the fund missed out—while suffering with poor results from its new strategies.
We endlessly encourage staying the course, hanging in there, living with volatility, avoiding the stampedes, seeking the bargains… in fact, aiming to do the exact opposite of what the OPS fund managers did. It is not easy to do the right thing, but you, the best clients in the world, have shown perseverance and patience when needed.
It is unfortunate that the people responsible for management of the fund lacked the basic good sense that you possess. Clients, if you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
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