July 22, 2016
Set sail or be sold – The tale of the sailor and the salesman -“Who’s driving your ship?”
A sailboat might be one of the purest forms of transportation known to mankind and certainly one of the oldest. It is both economically and environmentally friendlier in comparison to the erroneously despised carbon burning automobile or even your majestic methane generating mare.
A sailboat does not cut through the water on its own. It is directed by a trained captain capable of making corrections to the sails and when trimmed properly, the boat should want to head up into the wind when you let go of the wheel. It is imperative that the captain follows a practice of routine maneuvers to keep the boat afloat and getting you to your desired destination. Same goes for a professionally managed portfolio. Investors that hire a qualified professional Portfolio Manager backed by a full team of consultants and specialists have the luxury of sitting back and relaxing knowing that their finances are being taken care of. Obviously there is a cost for this peace of mind and the fee is always transparent. Canada’s famous Bluenose has roughly 18 crew members; having access to a multitude of outside consultants and access to Scotia Wealth Management’s team of specialists makes for smoother sailing for our clients.
What made me think of this analogy was how much selling there was going on this summer in the financial services world. I have seen two deals alone that promised big returns and all you had to do is give them money. They are deals being sold by brokers. One deal was offering 8% for five years and another was a mutual fund that was paying 6%. Clients were kind enough to share this with me and although I was aware of these types of offerings I was surprised at how few details were disclosed with regard to the risk. I put the question back to the client’s that were inquiring and asked; “why would anyone pay you 6% or 8% when the prime lending rate is only 2.75%?” The answer is simple; the companies that are in these deals are companies that cannot get financing from the bank. Risk? You bet! Imagine another 2008, a credit crisis or a currency crisis. It will happen again and there will be carnage and there will be losers. Investing into illiquid investments that are considered junk bonds could see your investment drop 50%, 60% or more. It isn’t worth it. In addition to high risk there are additional management fees and commissions. These are not investments Portfolio Managers venture into. These are investments that brokers sell.
These past few weeks once again reveal that even with the entire cleanup that the financial industry is going through, the death of the salesman won’t happen. There will always be someone out there selling seductive returns as a replacement for protective risk management. You may know the old saying, “Red sky at night, sailor’s delight. Red sky in morning, sailor’s warning”. Good words to heed when the offer sounds too good to be true.
“To be an investor you must be a believer in a better tomorrow.” – Benjamin Graham
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