To Bunnyip, SIG1974 and Julia,
There is much to learn from the Storm debacle if people are willing to listen to those that were caught up in the Storm collapse and understand first hand what occurred.
I believe this forum can be enlivened by constructive debate about some of the issues involved and the weaknesses that have been inherent in the financial advisory sector to date. By exploring some of these issues, we can also inform any would-be investors of the things to look out for that were not apparent to us at the time.
There is a window of opportunity here to delve into the reasons behind the Storm collapse and formulate a blueprint for anyone that is seeking to invest.
Frank
Indeed there is much to learn from those who were caught up in the Storm debacle.
And whether you realize it or not, there is also much to learn from some who were
not caught up in Storm. You can keep believing that
‘we’re wise after the event’, but the fact is that some of us on here have been managing our own investments for many years, and in that time we’ve seen many shonky schemes come and go. We haven’t done everything right, we’ve made mistakes ourselves at times, but we’ve mostly managed to steer a path that’s allowed us to make reasonable returns in relative safety.
You could learn a lot from us, Frank, but instead you’ve been more inclined to write us off and dismiss our views and experience as irrelevant nonsense from people who just don’t understand.
Here are a few bits of advice that you may want to consider, or pass on to others. Or discard if you think they’re worthless.
* Don’t put all your eggs in the one basket.
Split your money up between different asset classes, rather than relying on the fortunes of just one.
* If it sounds too good to be true, then it probably is.
Salesmen can be very accomplished at dressing things up to look much better than they are.
* Think for yourself.
Letting others do your thinking for you is not a safe option. That doesn’t mean you shouldn’t consult professionals, just that you must put some thought and effort into scrutinizing the strategies they suggest.
* Use common sense.
A number of Stormers have told me their biggest regret is not using a modicum of common sense that would have enabled them to see the dangers inherent in the Storm strategy.
* Don’t be lazy.
Laziness is when you believe everything salesmen tell you because you couldn’t be bothered to conduct a small amount of research to check the veracity of their information.
Laziness is when you couldn't be bothered to avail yourself of the many opportunites that are freely available to aquire some basic knowledge and skills in investment and finance.
Laziness is when you sit on your hands and do nothing while your manager lets your business bleed to death. (Can you imagine the owner of a cattle property doing nothing while his manager lets the breeding cows die in a drought? Can you imagine a factory owner sitting on his hands and taking no remedial action while his manager allows costs to spiral out of control, or in some other way let’s the business go down the tube?)
It’s all very well for you, Frank, to accuse Storm and the banks of sitting on their hands and doing nothing while Storm clients burned (as you stated in one of your posts). But you did exactly the same thing yourself.
DocK stepped in and over-ruled Storm by selling her investments before they got down to margin call level. Other Stormers could have done the same. And yes, I know Storm talked some out of it when they tried, but they owned their business, not Storm, and the final decision was theirs.
* Don’t be a gambler.
The Storm strategy was a giant gamble that was guaranteed to fail. Why?...because its continued success relied on an impossibility – a constantly rising stock market. Bear markets follow bull markets like night follows day. One of the strongest bull markets in history had been in place for some years when you signed on with Storm. Bull markets create a feeding frenzy where every man and his dog is piling into the market to get a slice of the action. Such irrational exuberance can push stock prices to levels that are out of all proportion to company earnings. Clearly this is not sustainable indefinitely. Nobody knew how long the bull market would continue, the only thing certain was that it would end sooner or later, and the success of Storm’s strategy would end with it.
Therefore the Storm strategy was always doomed to failure sooner or later. On that basis alone, quite apart from all the other aspects of the Storm case, investors should have shunned Storm's strategy.
You may not have been wiped out if your margins calls kicked in in time and you had sufficient cash reserves to weather the downturn, but at the very least your losses would have been substantial – the combination of a plunging market and an aggressive gearing strategy would have seen to that. And many people without decent cash reserves would have been wiped out, even if margin calls were delivered in a timely manner.
Storm’s strategy was an accident waiting to happen.
Frank – you can lobby the government and the financial planning industry all you want. And you may or may not be successful in bringing about some changes.
But regardless of what new or modified regulations are introduced, no matter what penalties are imposed on shonky operators, no matter what restrictions are placed on banks, investors will still get burnt if they wade into investment in a careless manner without adhering to the general guidelines I’ve outlined above.
The long and short of it is that no amount of rules and regulation can protect gullible and complacent people from themselves.