What are the biggest issues the average investor faces? No matter what answer anyone offers, you can pull out a marker and draw a line back to two things – lack of knowledge and emotion.
Despite what we may think, none of this is the investor’s fault. Yes, the correct information is flying around out there, but it exists in a massive sea of misinformation. The bigger question is how does the investor sift through all the other rubbish and arrive at a time-tested investment philosophy? Secondly, how do they control their evolutionary programming that urges them to do all the wrong things at the wrong moments?
Yes, they can work with an adviser, but that’s 10-15% of people.
If they land with the right adviser that investment philosophy can be explained ad nauseum, the investor can digest it, but the moment the markets take a downward dip there’s the potential for the investor to crack. When an investor cracks, there’s the potential that they’ll want to do something to alleviate their concerns.
Whether investors know it or not, a big part of working with an adviser is to counter this. If there’s an increased period of volatility and markets are tumbling, the phone may start ringing. If an investor asks an adviser “What do we pay you for? And what changes are you going to make to address this rough market?”
The thinking behind those questions highlight exactly why they pay an adviser, even if in that moment they aren’t sure why. The answer is singular: “the investor pays the adviser to stop them making changes at times like this.”
Out in the adviser-less wilderness, there are no safety protections and there are no advocates. An investor is at the behest of whatever knowledge they’ve accrued and all their behavioural traits.
It’s why bad investment options and outright frauds continue to flourish. We capped off 2017 with some news on a Ponzi scheme in Sydney that ASIC shut down, now ASIC has suspicions they’ve found another.
Investors in Goldsky, the Kingscliff-based hedge fund that raised millions of dollars from local individuals and sporting stars, may be owed $12.6 million, according to a report by receivers William Buck.
The report, submitted to the Queensland Supreme Court on Monday, said that since March 2017 investors paid $23.4 million into the fund that the corporate regulator had suspected was a “Ponzi scheme”, while $14.9 million was paid out to investors.
There’s a lot to this story. In September Goldsky was sued by the US Securities and Exchange Commission, alleging false and misleading statements about the amount of money they’d raised, who their auditors were and making a claim to ASIC that they did no business in Australia.
Goldsky never had an Australian Financial Services License, which should have been a red flag to anyone handing over money, but many did, including former Olympic swimmer, Sam Riley, former Tour de France cyclists Robbie McEwan and Stuart O’Grady, surfer Joel Parkinson, former AFL players Simon Black and Clark Keating, along with current AFL player Devon Smith.
Goldsky had harnessed some of that celebrity power it seems, to promote their fund.
From Parkinson in 2017 press release from Goldsky:
“It’s reassuring for myself and my family to have a company like Goldsky that continually strives towards perfection in the investment world. Goldsky is guided and motivated towards optimum returns for investors and Ken’s amazing mathematically-driven strategies have provided peace of mind for our financial future.”
Parkinson denied he made that quote.
While Stuart O’Grady was also quoted in the same release.
“As a 2017 winner of a prestigious AsiaHedge Award, Ken and his team have been acknowledged for continued returns approaching 20% across an entire 12-month period. The best part of all this is that the Goldsky investment opportunity is now open to the general public. I for one am very thankful to be involved in a business that is serious about ensuring positive outcomes across its entire portfolio.”
O’Grady has never confirmed he made that statement.
This use of celebrities was likely to cover up that the whole idea behind the fund was overly complex. From the Goldsky website:
We utilize quantitative strategies to apply a rigorous approach to investing. Our proprietary strategies analyse a wide range of global economic, political and sentiment drivers and capture patterns in market behaviour identifying shifts in price patterns and style trends. We blend short and long-term trades incorporating both multiple time frames and strategies focused on risk as the pre-eminent factor in portfolio construction allocating capital dynamically to deliver alpha achieving superior risk-adjusted returns throughout all types of market environments.
If you can’t derive anything from that nonsensical word salad, essentially, Goldsky was promising all of the upside and none of the downside. They would outperform the market, no matter what was happening and deliver great returns. An impossibility in financial markets, but there’s always someone willing to parrot this nonsense, as this fawning profile from 2016 shows.
Very few fund managers can produce annual compound returns of more than 20 per cent – a result that does not come down to luck or a mere random choice but, rather, the result of Goldsky Asset Management’s formula of investing widely in over 100 markets and continually analysing and adjusting the investments based on meticulous research.
One of the most unfortunate investment myths that never dies is the one about the guy (could also be a lady). There’s always a guy out there somewhere who is outperforming the market year in, year out. He has a strategy that no one has thought of before, he’s analysing more data and he’s getting astounding results.
There is no guy.
If someone’s fund is posting amazing returns, there are two possibilities. First, those amazing returns are unlikely to be repeated – meaning you’re already late to the party. Second, there was never any party in the first place.
In summary, ‘the guy’ is always short-term outperformance or long-term fraud.
Never forget, this doesn’t just happen to celebrities, any investor can fall foul of fraudsters. If it sounds too good to be true, it probably is.
Thank you to my friends at FYG Planners for the copy. This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.