Monday, 16 February 2009

I told you so

I commented last week:
New Zealanders generally lack enthusiasm [for investing], so much so that they saw finance companies as a safer bet than shares. This ignorance of risk and investing is wide spread - now they head over to bonds and I can bet they won't read the prospectus this time either.

So it was with a good dose of "I told you so" that I read Brian Gaynor's article on the recent Fonterra bond issue. He opens with:
There are a number of disturbing features regarding the gigantic Fonterra bond issue.

In particular the overwhelming response from investors, and their advisers, before offer documents were widely available clearly indicates that we have learned little from the finance company debacles.


According to the Securities Commission: "If an investment is recommended by a financial adviser he or she should have read the prospectus." How many advisers had read the Fonterra prospectus before they registered their firm allocations?

My question: even if they did read the prospectus in it's entirety, how many understood the contents?

Another concern is the Fonterra Bond Issue was to raise $300m, but to date they have raised $800m. They appear to be willing to take on the extra $500m of debt - what for? Surely if the needed more than $300m they would have asked for it. This make me very nervous.

One other fact that Gaynor raises that should concern all is the lack of disclosure:
Neither the investment statement nor the prospectus contains any specific information on Fonterra's performance for the first half of its 2009 financial year, which ended on January 31.

This omission is unsatisfactory because the company probably had a poor six months and its debt levels may now be materially higher than they were at the end of its 2008 financial year.

Untrustworthy management - take care.

Why do we continue to make these mistakes?
Whenever I bring up money matters with Kiwis they tend to just shut down. They don't want to even discuss in on a general level, let alone on a personal level - especially if they are in financial trouble. Surely this is the best time to talk openly, the time you need the most help.

I've been lucky in my money education, I've had one smart mentor plus five other investors that I speak to whenever I have a question. Add to this membership to two investment clubs and you get the idea that money education requires some effort, a reasonable amount of natural inquiry and is a lifetime pursuit.

I'm not saying I've never made a mistake with my investing or trading, I most certainly have and will continue to - I'm after all not the smartest cookie in the jar. The difference between me and most Kiwi investors is that I learn from my mistakes and I don't whine that I was 'ripped off' or try to blame others. But the main difference is I talk to people who are wealthier than me - even if I look stupid or don't particularly understand everything they say - eventually it sinks in.

So get into it, it has boring moments, but it isn't hard, and eventually becomes very exciting, as your wealth and security grows.


Elijah Lineberry said...

Good post, Anna.

I, too, never moan when I make a mistake in trading or investing; you should take the good with the bad.

Unfortunately few people take this view believing instead they should be bailed out when a mistake is made.

The obvious solution, however, is quite simple...

Back Yourself.

By that I mean instead of investing your capital backing someone else you should use it to enter a profitmaking undertaking (which may well be trading shares); the idea of investing large amounts of capital and no longer having to work is a foolish and naive one; much better to focus on a business activity, earning profits you, yourself, earn and enjoying the spending of them rather than expecting something for nothing.

It is astonishing how many people are too scared to 'back themselves' but, presumably, had enormous confidence in Rod Petricevic....(!)

Paul said...

"But the main difference is I talk to people who are wealthier than me - even if I look stupid or don't particularly understand everything they say - eventually it sinks in."

Hindsight is only 'hind'sight if something comes before... :p
I've heard it said that we learn the least from reading, more from copying, and the most from doing (or something). Sounds true enough to me.


Annie Fox! said...

Hi Paul, I've never heard that saying and it probably make sense in most situations. But in investing or trading the copying doesn't work. Just following what someone else invests in without having done your own homework is a disaster. You more than likely don't know why you are buying or don't agree fully with the reasons for buying and more importantly when do you sell? why? and for what reason? The man you are coping may not be around at this point.

But maybe I've interpreted the meaning of 'copy' incorrectly.

The ex-expat said...

I've always followed the groucho marx school of thought on investment, if someone wants me a lowly pleb with not much cash to invest with them I don't want to be part of their club as someone else far smarter than me would have worked out they were onto a good thing a hell of a lot earlier.

Looking back, I feel that my lack of knowledge about finance and investment is a major gap in my education and is something that I need to rectify.

Paul said...

I think I was trying to describe how things sink in/the nature of understanding. By copy I don't mean 'do what the other person does' but 'record for yourself'. Remember back in school copying things out of textbooks? It's easier to remember if you write it out than if you just read it, and to change the wording or put it in shorthand you have to understand it or the result doesn't make sense, and eventually what your remembering is the reasoning and not just the words: you don't have to think over the words anymore because that work is already done. Call on the knowledge in future and the understanding is there without having to sort though the words in your head. Or maybe I'm just talking out my arse?

(oh and I know nothing about investing, usually only have a few thousand in my savings account at most, and usually something expensive comes up before I can consider investing it.)

Annie Fox! said...

Paul, now I understand and concur.

Mark Hubbard said...

Great post Annie. Lots of wisdom. And yes, I hate the look of Fonterra at the moment.

Simon Earle said...

Hi Anna

I really enjoy your blog

Since you have been commenting on Fonterra's bond issue, I thought you may be interested in a newly created page
which you may like to add to the article for readers interested in downloading a .pdf of our prospectus.

If you have any queries, please don’t hesitate to contact me.

Simon Earle
Web Content Publisher