Under the spotlight

Date Published:26/02/2009

We have seen a number of individuals and companies under the spotlight in the general and financial press recently.

Names such as Lord Stevenson the former Chairman of HBOS, Andy Hornby the former Chief Executive of HBOS, Sir Tom McKillop the former RBS Chairman and Sir Fred Goodwin the former Chief Executive of RBS are likely to be familiar, as recently these four individuals were apologising to MPs in a Treasury select committee meeting.

However, they join a long list of individuals whose names will also be familiar. Only last November, Alistair Darling, Chancellor of the Exchequer, Mervyn King, Governor of the Bank of England and Lord Turner of Ecchinswell, Chairman of the Financial Conduct Authority were also in front of a Treasury select committee answering questions on the banking crisis. MPs also wanted clarification on the responsibilities of Government and the banks to taxpayers.

In October 2007 Adam Applegarth, former Chief Executive of Northern Rock, along with some of his colleagues was also in front of MPs where they seemed to blame the BBC, credit markets and the public for causing the problems at Northern Rock. There were also other comments that were not correct but the Financial Conduct Authority decided not to do anything to correct this.

More recently, names such as Bernie Madoff and Sir Allen Stanford have dominated the headlines.

There are allegations of serious fraud against these two individuals amounting to $50bn in the Madoff case and $8bn in the case of Sir Allen Stanford. Clearly time will tell in both of these sorry tales.

However, these two alleged frauds appear to have rather long tentacles with some well known names and a number of banks that have lost money at the hands of these individuals.

Readers may be asking what the point is of all these painful reminders?

Well, whilst the spotlight has been shining on certain specific issues, this does not really help investors.

Looking into a spotlight will temporarily blind you so you cannot see what is really going on around you.

I believe that the spotlight has been a significant distraction for investors, away from the reality of what has happened.

Many of the current problems have been caused by institutions looking for ways to increase their profits. ‘Clever’ schemes were the answer. These purported to provide high returns at low levels of investment risk.

Similarly, Bernie Madoff promised consistently high returns to his investors whilst Sir Allen Stanford also promised unrealistically high returns, both of which raised eyebrows in some, but certainly not all, quarters. Some eminent sports people, banks, and investment fund managers were all fooled.

Investors should look at their arrangements closely with the benefit of the light spreading from the spotlights.

Getting back to basics and proven theories of investing will be the best way to proceed from here.

Find a totally unbiased fee charging firm, review your plans and objectives and remember that if something seems too good to be true, it probably is.

Don’t stare into the spotlight, it will dazzle you and you won’t be able to see anything until it is too late.

balanced stones