Jokes about second-hand car salesmen have been around for decades. A reputation they gained historically from carrying out shady deals which relied on using half-truths and then being sparing with the accuracy of the remaining information they provided to an unsuspecting buyer. Today while I am sure the trade has moved onwards and upwards, as "truth in advertising" has become a watchword, the poor reputation and the jokes still seem to be out there.
Fast forward to today and this world we live in of instant information, with deals that get done in seconds. We come to rely on third-party providers of information to give us details of deals that might be available in the market place because either we have insufficient time to do all the detailed research ourselves, or because those providers may actually have access to information we didn't even know was available. Comparison web sites in the United Kingdom and other countries have taken a lot of the hard work out of finding deals or at least providing a starting point of comparison for buyers. However, as the rather perspicacious author of the highlighted article pointed out some two and a half years ago "They are a useful starting point if you are shopping around for a financial product – but the best deals may well be elsewhere".
The "general public", it seems to me, have been dismissed for too long as an investing class. How often have you heard the expression that such and such an investment is not for "widows and orphans"? In other words it has a high degree of risk. Or that you should "only invest what you can afford to lose". Another example of don't take unnecessary risk - suggesting that the man or woman in the street is unsophisticated in investment terms and that this arcane science is best left to the professionals. But surely, since many more people have been put in charge of looking after their own wealth management - particularly their pension arrangements, for example, there has been a need for genuine independent assistance and advice.
Well, based on recent events, how well have those professionals served us?
Starting off with sub-prime debt which opened the "can of worms", whose job was it to evaluate and rate the offerings made by various investment banks? The rating agencies are not blame free, and neither should they be allowed to hide behind any "weasel" clauses that exist in agreements with their clients. How can there be no conflict of interest when rating agencies are being paid by the firms who are organising and selling debts to investors? Even rating agency staff themselves were aware of the dangers, given the contents of internal emails discovered by investigators with one such classic reading "Rating agencies continue to create and [sic] even bigger monster--the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters."
And yet the rating agencies are still out there, still providing ratings and, guess what - we still seem to be believing them!
Moving on, who else should be helping us to unravel the mysteries of investment? Analysts perhaps? Not of course that they are allowed to talk their own book because the "rules" that exist prevent such skullduggery. Or so I am told!
But you cannot blame the analysts, because they are merely "interpreting" the information they have on a particular investment, and if they get that interpretation wrong then it is "market forces" that have been the cause - not their own failings. Of course, we do bear some of our own responsibility. We became less careful in assessing our own investments and became too reliant on the words of "analysts", who could not be held accountable for their actions.
Take the news out of London yesterday from Barclays Bank - where it managed to keep its earnings drop for 2008 at less than 1% of the previous year. In a year of turmoil, credit write-downs and with others crashing and burning around them, they were almost forced to bring their results announcements out early to counter negative comment in the market. Of course, our professional analysts spotted this one - the Barclays results "beat the mean estimate of 12 analysts!" No doubt they will have more excuses for their inability to provide the public with an accurate assessment than the horse trainer who was responsible for the horse of which I was a syndicate member.
So, if the rating agencies are not exactly independent, and if the crystal ball from the analysts is as flawed as yours and mine, who can you believe?
Well,we still have the media I guess!!
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