Friday, November 20, 2009

Missed – by a country mile

While various groups beat up various other groups in trying (hopelessly) to pin blame on anyone that won’t sue, commentators on and submitters to the parliamentary inquiry into finance company collapses persist in running away from the role of idiot investing based on the proposition that there is a free lunch and that risk can be made to go away – even the most basic tool – diversification was ignored in the investor scramble for high returns.

Here is a classic snippet typical of numerous such incidents….

“A Paraparaumu couple also fronted to the committee. Rowland Crone was an accountant and manager until he retired in 1995 and he and his wife used investments to supplement their super.

Six of 10 finance companies the couple invested in defaulted -- representing 38 percent of their portfolio. They had invested in companies with A and B ratings.

"They were rated as top finance companies."

The pair got 39 percent of payments back.”   NBR 20 November.

This unfortunate was an accountant and a manager. So Mr Crone is well ahead of others in the knowledge and experience game.

Ten finance companies ???

Perhaps 80 odd years of the welfare state and the last 9 years assurances that NZ really does give out and should dish up free lunches means these very likely otherwise intelligent people got the idea that you can ignore risk, ignore diversification and that regulators can look after you. $0.61 in the dollar says this is misguided.

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