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.

Exactly!

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.