Saturday, November 22, 2008

Buffetted in times of recession

I like many Irish people purchased shares in Telecom Eireann having fallen for all the hype and marketing about how wonderful an opportunity it was. It was my first foray into the world of stocks and shares and apart from those who sold their shares in the first few days we suffered big losses.

In recent times people have suggested that shares are now great value and the "sage of Omaha" Warren Buffett tells us (see video below) "Be greedy when others are fearful and be fearful when others are greedy" But can we trust the stockbrokers not to sell us duds as many have tried over the last decade.

The Sage of Omaha!

As Dave points out on his blog here at 6:30 on a Wednesday some "expert" over at Davys is ramping up Bank of Ireland shares and then at 8:20 the next morning they are revising down their price target and as he says some explanation and disclosure as to the drastic change would be helpful. Of course if an ordinary consumer bought €20,000 of shares based on this advice at the time, they would be sitting on shares worth now about €1500. But no fear Davys would still have their hefty fees.

Of course Shane Ross is the man the stockbrokers hate, because he was a stockbroker and he knows that the so called "experts" in stockbroking firms are just making it up as they go along. As he points out they have been wrong so many times and they are still listened to. His article is a fairly damning indictment of the situation and that was January 2008 and since then share prices have fallen much much further. He also makes a good point about a conflict of interest where a stockbroker personally or his/her company could well be the broker for the firm they are encouraging others to invest in. Is this always declared to the client? Its a serious issue when people's life savings can be lost or massively reduced by these recommendations.

This is an area which does require greater regulation, but will the stockbrokers who are powerful vested interests really want our politicians upsetting their applecart? Indeed there have been some minor changes and the Financial Regulator has now some oversight of the work and procedures of the Irish Stock Exchange, but I don't think it is enough a lot more needs to be done. Of course our stockbroking firms have always been very supportive of the democratic process and in return some politicians appear to have been very forgiving when of "errors" that have occured, so I wouldn't "bank on it" and the prospect of any serious and meaningful regulation of this area any time soon.

But that doesn't mean that we shouldn't try and this is an area I will be returning to in the coming months. And of course apart from the big regulation issues there are the individual cases where people find they are being charged hefty fees for a bad service, and unlike the price of a pint of milk, huge sums of money are involved.