Storm Financial Group

[mellifuous]

I don't know that education will ever entirely protect everyone from being taken by scams, con-artists, the unethical etc, but my own personal losses would certainly have been less if I had the knowledge then that I have now. True, the model used by storm wasn't unique at all, but other investors did not suffer losses to the same extent due in many cases to better management by their advisers, and less predatory behaviour by their advisers/lenders combined.

Purely from my own perspective, I think a better financial education would have helped me in the following ways:

1. I would have been aware that I could very easily do for myself what storm charged me 7% to do, using either managed index funds via vanguard, or and index-based lic such as STW or Argo, Aust Found etc. Gearing optional, but easily arranged via a plethora of margin lenders.

2. I would have been aware of the cyclical nature of the sharemarket and been on the lookout for any black swans on the horizon. I may not have got out of the market as early as I should have, but I would have got out a lot earlier than I did. Much capital could have been preserved and put back to work in March/April, rather than the little I was left with.

3. I would have known what a stop-loss was, how they worked and why they can often save your hide!

4. I would have seen storm's operation and lack of managemet for what it was. I would not have been as gullible as I was.

5. I would have had the confidence to manage my own affairs, and possibly would have spread my capital between the sharemarket and property investment, instead of all in shares.

6. I doubt I would have been able to obtain the amount of debt from cba that I did if I were not affiliated with storm. This is irrelevant to the topic of education in a way, but had I known more before I went to the first storm seminar I would not have gone back for a second, hence less borrowing etc.

I agree that ASIC certainly need to be more proactive, rather than the reactive toothless tiger they appear to be at present. But I also feel that a better financial education would not only help people be better able to manage their own affairs with expert advice sought where necessary, but would more importantly enable them to see a lot of the money-grabbing schemes such as storms for what they are. Possibly more important yet, if more young people realised the importance of getting a good start on investing at an early age, there would be less desperate middle-aged folk worried about surviving on the pension for the vultures to prey on. If there has been anything positive for me to find in my situation, it is that my kids will be a hell of a lot better prepared than I was. I'll be doing everything I can to make sure they never make the same mistakes their parents did.

Thank you very much for taking the time to post such a thoughtful post.

It seems we agree on two issues, (1) that the system was not unique to storm, and (2) loses by those in the other investments using the system did not suffer such losses.

Yes, it seems that there are things to learn in order to avoid some behaviors by managers, but doesn't that come down to regulation?

I guess what I'm trying to say is this - there should be certification process on systems such as the one used by storm - (1) the lending process (eg. margin loans), (2) the investment process, and (3) the protection process (eg. margin calls).

If there such a verification by some (suitably insured and registered) independent entity, then wouldn't that avoid the need for a great deal of independent learning? After all, not everyone makes it to the top of the class.

I invested in City Pacific's FMF and I think my investment was decimated because of a systemic failure too. Simply put, the manager was allowed to enter into transaction that were downright unbelievable.

I think the reality is that ASIC is no more than a 'paper pusher'. I am aware from a letter received from ASIC, that ASIC regards my losses in the FMF as arising from my (poor) choice of investment, my prudential choice (as they put it).

I wouldn't be surprised if they thought likewise of yours.

I also think the corporations act is way of date and needs to be seriously modernized post-haste in light of events these past two years.

Again, thanks for taking the time to explain - I really appreciate it.

 

[cuttlefish]

Guilt is also something that is hard to shake. Guilt that we've deprived our children of the futures we'd planned for them, and the opportunities that they must now miss because we cannot afford them any longer. Guilt that we were too gullible/trusting/foolish/whatever to do more research ourselves. Guilt for being taken advantage of by storm/bank. Shame for being so easily conned. These feelings are fruitless in the end and will serve no useful purpose. The anger, if properly directed, might. It is an uphill battle to shake off the guilt, but is something that most ex-stormers must try to do if they are to move forward with their lives.

I've said this a few times in this thread and I don't direct this to you in particular, but to anyone coping with trauma - a really important aspect, after digesting and accepting your responsibilities in whole or part for the situation that unfolded- is also to forgive yourself.

Also, in terms of depriving your children of something - I'm not sure what age they are - but although this has taken away the opportunity to provide the financial gifts you may have been hoping to bestow on your children there is another opportunity to give them a gift by showing leadership in how you accept and cope with your own circumstances and related guilt and depression and strive forward nonetheless.

It will sound like a cliche - but many many children have parents that take little responsibility and provide little in the way of love, care, moral guidance or leadership - so being in a position to still being able to provide these things is incredibly important and in terms of a contribution to their lives will always far outweigh any financial contributions.

 

[-Bevo-]

1. I would have been aware that I could very easily do for myself what storm charged me 7% to do, using either managed index funds via vanguard, or and index-based lic such as STW or Argo, Aust Found etc. Gearing optional, but easily arranged via a plethora of margin lenders.

Excellent Dock appears people are beginning to get the idea what can be done, even if you Geared with a margin lender Stormers would have certainly been forced out of the market much sooner.

You could also add Index Futures to the above which will give you the ability to profit from Bear markets.

 

[DocK]

I've said this a few times in this thread and I don't direct this to you in particular, but to anyone coping with trauma - a really important aspect, after digesting and accepting your responsibilities in whole or part for the situation that unfolded- is also to forgive yourself.

Also, in terms of depriving your children of something - I'm not sure what age they are - but although this has taken away the opportunity to provide the financial gifts you may have been hoping to bestow on your children there is another opportunity to give them a gift by showing leadership in how you accept and cope with your own circumstances and related guilt and depression and strive forward nonetheless.

It will sound like a cliche - but many many children have parents that take little responsibility and provide little in the way of love, care, moral guidance or leadership - so being in a position to still being able to provide these things is incredibly important and in terms of a contribution to their lives will always far outweigh any financial contributions.

My kids are just entering those horrid teenage years where they "expect" they should be able to have/do everything their mates have/do. I regret that they will have to miss some holidays away with the extended family and we are unable to afford for them to take up some educational opportunities, but we're managing to keep them in their nice private school so far. In a way I know it'll be good for them to do without a bit and might just save them from being spoilt little brats like some of their friends. It didn't do me any harm to grow up doing without, so they'll live. I had intended for them to be able to go through uni without hex debts though, and this may now not be an option. Again, many others cope, so will they.

It took me a little while to get over the guilt, but it solves nothing in the end. Getting the education through reading everything I can get my hands on has at least given me the knowledge, ability and confidence to get my remaining capital working for me - and this will go much further to getting me out of the #### than any amount of guilt or self-pity.

I was recently told the wife of an old school friend has just been diagnosed with cancer and faces several months of chemo, having just been through surgery, with little likelihood of a good outcome. They have two young daughters. You don't have to think too hard to realise that things could be much, much worse and there is still an awful lot in life to be thankful for.

I'd urge other ex-stormers to try to look forward, rather than backward. It's all too easy to become stuck in a rut of anger, self-pity and hopelessness. I know some have no idea how to move forward, and a huge issue for most ex-stormers is not being able to trust advice from anyone, or not knowing where to start. There have been several good suggestions on this forum. Some have a huge task ahead of them, but as the old cliche goes "the best way to eat an elephant is one mouthful at a time". You just have to start.

None of the above means we can't look forward to the various parties we feel have wronged us getting what's coming to them though - I still have a healthy serving of anger simmering away on the back-burner

 

[Judd]

My kids are just entering those horrid teenage years where they "expect" they should be able to have/do everything their mates have/do.

All other aspects aside, probably a wonderful opportunity for them to learn the full impact of the phrase "And what part of NO don't you understand."

 

[DocK]

All other aspects aside, probably a wonderful opportunity for them to learn the full impact of the phrase "And what part of NO don't you understand."

The bit that doesn't go "OK son, you go ahead and do whatever you want", or the bit that goes "sure, just help yourself to my wallet/credit card and go for it!". The best request I've had so far is for us to sell Mr Thirteen's younger brother so he could have his own bedroom, plus his own "playroom" complete with widescreen plasma, WII, PSP, surround-sound stereo etc, just like his mate (who happens to be an only child). When it was suggested that his mate might prefer a sibling to muck about with rather than all his techno toys we were met with "yeah, right! Whatever!" He does love him deep down though, I think....., maybe????? (gulp)

Gotta love 'em.....

 

[Ironhalo]

DocK, my mother said to me 'I put you through 12 years of private school, but there is no way I will be paying your HECS'.

I'm glad she didn't, considering how many kids drop out of first year uni, they are better off paying for it themselves when they are earning good money down the track....at least they have a reason not to fail uni that way!

 

[DocK]

DocK, my mother said to me 'I put you through 12 years of private school, but there is no way I will be paying your HECS'.

I'm glad she didn't, considering how many kids drop out of first year uni, they are better off paying for it themselves when they are earning good money down the track....at least they have a reason not to fail uni that way!

True, true, but I was kinda hoping that if I paid their way through uni I could forever remind them of my generosity when I'm an even older, crankier and more feeble-minded version of my current self, and guilt them into taking care of me in my old age

 

[cuttlefish]

True, true, but I was kinda hoping that if I paid their way through uni I could forever remind them of my generosity when I'm an even older, crankier and more feeble-minded version of my current self, and guilt them into taking care of me in my old age

Very glad to see that you blokes can still manage a smile amongst all of this , and good comments in your post 5 back from this one DocK.

 

[bunyip]

There are a number of strands in this argument about happiness, greed, fear and remorse that apply to the topic of the Stormers, which perhaps may be better off in another thread, but as Storm Financial is a prime example of capitalism at it's worst a few points may be worth mentioning.


1. When the bull market was in full swing, not one Storm investor publically questioned the model, whether they are now SICAG members, former advisers or investors.

2. Many Storm investors made indecent profits through no skill of their own in the bulll market, but rather through a model which Manny charged 7% or more for , and at the time they felt justified in paying.

3. Many Storm investors were so taken by their unearned largesse that they went on overseas trips with Manny and Julie, to expensive destinations, and spent much money on vanity and show. They bragged of their "skill" in choosing such a model and tried to convince friends and family to join the circus. Many succeeded.

4. Blind Freddie could have predicted that the whole show could become undone one day, but greed kept the Stormers loyal to the model. They are not alone in this, many investors on this forum , myself included could have gone to cash much earlier than they did.

5. Fear crept in late last year, when Storm, the advisers, principals and Banks lost the plot during an unprecedented, at least in our lifetime, bearmarket.[/B]
6. As many humans do, when greed leads to fear, and wealth and happiness are replaced by penury another emotion sets in. Remorse. The Stormers are angry, at themselves, their advisers, and those who escaped their fate, and anyone who points out the reality of the poor choices they made.

7. From the Tulip bubble, to the railroad failures in the US, to the Great Depression, to Ponzi, Pyramid, Skase, Bond and Cassimaties, this will be repeated in the future. It is in our nature to be foolish about money and possessions.

8. It cannot be legislated away without great expense to investors, and it is the muppets who will bear most of the expense as independent investors will continue to do a Bradbury behind the braying mob, without the expense of advisers.

9. When it comes down to it all, it is only money. And many are too attached to money, equating it with happiness. Penury or poverty, the complete lack of housing, food, safe water, health and safety are much more prevalent in third world countries than they are in Australia.

They are my thoughts on it anyway.

So, it now remains to be seen how much can be clawed back from those with the biggest pockets, Banks, Insurances and the Cassimatises and Advisers.

But believe me, no matter how much legislation, it will happen again.


gg

Garpal

I agree with most of your points above.
However, I wonder why you claim in Point 5 that the 2008 bear market was unprecedented in our lifetime.
The magnitude of the plunge in the 1987 crash was similar to that which occurred in 2008.....both about 50%
However, the big difference between the two crashes was.....

2008 crash.....took 17 months from top to bottom (November 07 to March 09)
1987 crash....took less than 8 weeks from top to bottom (September 87 to November 87) and fell 25% in one day on 20/10/87

Severe though the 2008 crash was, it was mild compared to 1987 in terms of how fast the market fell.
2008 offered plenty of opportunities to make a timely exit from the market before it fell to portfolio-destroying levels. 1987 did not.

Cassamatis has repeatedly tried to hide behind the excuse that this bear was unprecedented. It's simply not correct.

 

[Garpal Gumnut]

Garpal

I agree with most of your points above.
However, I wonder why you claim in Point 5 that the 2008 bear market was unprecedented in our lifetime.
The magnitude of the plunge in the 1987 crash was similar to that which occurred in 2008.....both about 50%
However, the big difference between the two crashes was.....

2008 crash.....took 17 months from top to bottom (November 07 to March 09)
1987 crash....took less than 8 weeks from top to bottom (September 87 to November 87) and fell 25% in one day on 20/10/87

Severe though the 2008 crash was, it was mild compared to 1987 in terms of how fast the market fell.
2008 offered plenty of opportunities to make a timely exit from the market before it fell to portfolio-destroying levels. 1987 did not.

Cassamatis has repeatedly tried to hide behind the excuse that this bear was unprecedented. It's simply not correct.

bunyip, mate, they are reasonable comments with which I agree.

gg

 

[Harleyquin]

Cassamatis has repeatedly tried to hide behind the excuse that this bear was unprecedented. It's simply not correct. Bunyip I firmly agree with this comment on Cassimatis and the entire storm team they had plenty of time to make sure we were protected. All finance people knew this was coming at the end of 07. They knew about the sub prime lending even earlier than that and if they had their finger on the pulse would have been able to forecast that this wouldn't do the world share market any favours. Storm adopted the policy of 'don't follow the herd' however they also adopted the policy of 'sell high buy low' and were borrowing huge sums as the market was dropping. It makes far more sense to me, an inexperienced investor, to sell off as the market was dropping, wait for the drop to bottom out and then jump back in. With a little bit of common sense of their part all of this could have been averted. I enjoyed reading your post too Dok and the six major points that you have raised thank you.

 

[cuttlefish]

Cassamatis has repeatedly tried to hide behind the excuse that this bear was unprecedented. It's simply not correct. Bunyip I firmly agree with this comment on Cassimatis and the entire storm team they had plenty of time to make sure we were protected. All finance people knew this was coming at the end of 07. They knew about the sub prime lending even earlier than that and if they had their finger on the pulse would have been able to forecast that this wouldn't do the world share market any favours. Storm adopted the policy of 'don't follow the herd' however they also adopted the policy of 'sell high buy low' and were borrowing huge sums as the market was dropping. It makes far more sense to me, an inexperienced investor, to sell off as the market was dropping, wait for the drop to bottom out and then jump back in. With a little bit of common sense of their part all of this could have been averted. I enjoyed reading your post too Dok and the six major points that you have raised thank you.

Harleyquin - this sort of wisdom is always easy in hindsight - the reality is that the future direction of markets is simply not 100% predictable. There might be rules that can be applied that make sense - but nobody consistently picks tops or bottoms. The mistake is not in failing to predict what the market may or may not do - the failing is on two fronts

- (1: ) (and the biggest failing in my opinion) over leveraging clients that were risk averse and -

- (2: ) failing to react to what the market was doing. (as opposed to what it might do).

But No. 1 amplifies, in a life changing way, the impact of No. 2.

 

[bunyip]

In reference to some of the past posts:

OK so this rockhampton couple had 8mill, some here are labelling them greedy for trying to gain more..Are you all telling me if you had 8Mill in the bank you would sit back stretch your legs, fold your arms behind your head, and say.. Hmmm thats enough.. Yawn, I think I will stop now... What a load of BS

No, that's not what I'm telling you, nor did I claim anything of the kind in my post about the Rockhampton couple.

So how about you stop misrepresenting what I said, and read my post again.

What I said was that wealthy people, rather than risking all their wealth by gearing heavily into the stockmarket, would be more prudent to invest at least some of their funds in growth assets like residential real estate.

I gave an example that showed how 5 million dollars of an 8 million dollar fortune could be safely and conservatively invested in growth assets to produce a yearly income of a quarter of a million dollars, and average yearly growth of half a million dollars, giving a total return of 15% a year.

I clearly stated my view that you'd be a fool not to try and make your money grow, rather than leave it in the bank where there's no capital growth and its value is eroded by inflation.

 

[Julia]

Julia - its an interesting philosophical question and in trying to put together a response I ended up writing a short novel so I will attempt to keep it a bit more brief. To me people chase wealth for three primary reasons - security, freedom and power - and often the extent of each of these is limited only by the imagination and thus situations will vary from individual to individual.

For one individual security might be a comfortable home and a self sustaining income that provides for a comfortable lifestyle.

Sounds pretty reasonable to me.

Another person may not feel secure until they have a fortress with back to base security, a 24 hour armed body gaurd, a small plot of land that they can use for self subsistance in the event of a total collapse of the financial system, alternative safe havens in 5 different countries and a bomb shelter below their home.

Hmm. Well, I'd suggest such a person needs a psychologist more than they need a financial adviser.

I agree that people can become obsessed - wealth can bring about its own challenges for people - both in terms of fear and greed as it can amplify both emotions - but I don't see that people that have accumulated wealth (wealth is such a relative term anyway - I doubt a New York or London resident with $3 million AUD would be considered particularly wealthy in that scenario) should be judged any differently in terms of the mistakes they may or may not have made in relation to Storm.

I think you are avoiding the point I was making. You don't usually indulge in sophistry, Cuttlefish.
Let me try once again: Let's discard the example to which I was responding (as was Bunyip, and probably gg) of $8 million. Let's cut it right back to, say, $3 million.

If you were to avoid any risk and stick it in a bank deposit at a mere 5% it would earn $150,000 p.a. Considering much of our aged population lives on the government pension of around $15,000, isn't that $150,000 enough to provide a reasonable standard of living? Invest it in quality blue chip shares and it will likely earn double that without any additional risk of leverage.

So, Cuttlefish, let me ask the question another way: Is there not a level of capital where you feel you have enough without risking that capital, which you have worked for your entire lifeby borrowing against it to create even more?

I have never suggested that we shouldn't always have our money working for us, and leverage can be a really useful tool in the right circumstances.

But when it comes to placing at risk all that you have when you are close to retirement age for the sake of acquiring more than any reasonable person would need, then I think that is simply foolish.

 

[Julia]

The following is a quote from the SMH Retirement section recently:

The latest numbers from the Westpac-ASFA Retirement Standard show that for a couple aiming for a comfortable retirement an annual income of about $50,000 is needed, while a modest retirement requires about $27,000 a year.

Assuming that two 65-year-olds have a life expectancy of about 85, the couple will need retirement savings of at least $500,000 to fund a comfortable retirement. This assumes they owe nothing on their home.

 

[maccka]

This article from Stuart Washington of the Age makes for some very interesting reading.

Fresh suspicion of Storm

It will be very interesting to see where this line of investigation goes in the coming weeks.

cheers
maccka

 

[bunyip]

Sounds pretty reasonable to me.

Hmm. Well, I'd suggest such a person needs a psychologist more than they need a financial adviser.

I think you are avoiding the point I was making. You don't usually indulge in sophistry, Cuttlefish.
Let me try once again: Let's discard the example to which I was responding (as was Bunyip, and probably gg) of $8 million. Let's cut it right back to, say, $3 million.

If you were to avoid any risk and stick it in a bank deposit at a mere 5% it would earn $150,000 p.a. Considering much of our aged population lives on the government pension of around $15,000, isn't that $150,000 enough to provide a reasonable standard of living? Invest it in quality blue chip shares and it will likely earn double that without any additional risk of leverage.

So, Cuttlefish, let me ask the question another way: Is there not a level of capital where you feel you have enough without risking that capital, which you have worked for your entire lifeby borrowing against it to create even more?

I have never suggested that we shouldn't always have our money working for us, and leverage can be a really useful tool in the right circumstances.

But when it comes to placing at risk all that you have when you are close to retirement age for the sake of acquiring more than any reasonable person would need, then I think that is simply foolish.

Julia

You make an enormous amount of sense in this post, as you do in all your posts.

If I could just add one point to your comments about people who are near retirement........
Irrespective of whether people are near retirement or not, once they've made their pile and have more than enough wealth to enable them to live in comfort and security for the rest of their lives, it makes no sense at all to enter or remain in high risk investments such as heavy gearing into the stockmarket.
There are other avenues of investment that can offer security and significant income, and a level of capital growth that easily outstrips inflation.
It simply makes no sense for them to risk everything by taking wild gambles.

 

[Monario]

No, that's not what I'm telling you, nor did I claim anything of the kind in my post about the Rockhampton couple.

So how about you stop misrepresenting what I said, and read my post again.

What I said was that wealthy people, rather than risking all their wealth by gearing heavily into the stockmarket, would be more prudent to invest at least some of their funds in growth assets like residential real estate.

I gave an example that showed how 5 million dollars of an 8 million dollar fortune could be safely and conservatively invested in growth assets to produce a yearly income of a quarter of a million dollars, and average yearly growth of half a million dollars, giving a total return of 15% a year.

I clearly stated my view that you'd be a fool not to try and make your money grow, rather than leave it in the bank where there's no capital growth and its value is eroded by inflation.

I Apologize for taking you the wrong way Bunyip.... I guess I have just read to many posts now that say we were greedy, and if you knew the moajority of stormers situations it would not be a label given...

 

[Grey Ghost]

This article from Stuart Washington of the Age makes for some very interesting reading.

Fresh suspicion of Storm

It will be very interesting to see where this line of investigation goes in the coming weeks.

cheers
maccka

Yes that is a very interesting piece of information maccka. Congratulations I think you have got one up on Solly. He is usually the first one onto the latest developments like that.
Anyway if this is correct I don't understand why the banks went ahead and lent people money to put into these funds if they weren't all above board.
I suppose they may just plead ignorance/not our responsibility etc. as they have done to a lot of things so far but I for one will watch this development with interest.
I hope the parliamentary inquiry follows this up.