Minibonds

And the minibonds saga in Hong Kong takes another twist as Legco voted to invoke special powers to investigate the Lehman Brothers minibonds saga. If you don't know what the minibonds saga is, then you can probably forgo the rest of this post. Or you could search for it on google - up to you, ya know?

Looking around at other blogs, I think this Singaporean dude sums up my view the best. I basically agree with most of what he says (isn't it great when I can point you to other people who share my view but are much more eloquent than I - saves me so much work!!). The one thing where I don't fully agree is with regard to the uncles and aunties.

On some level, I can kinda sympathise with all the uncles and aunties who bought minibonds and lost all their savings. Regardless of their own culpability, its tough to suddenly have little or no money (esp considering the current economic climate). But throughout this whole sordid affair, one question keeps popping up in my mind - how much responsibility should these uncles and aunties bear for investing in minibonds?

The papers are full of sob stories from illiterate uncles and aunties who lost their life savings. If they were illiterate, why on Earth were they investing in the first place? I mean, its not like they had any chance of really understanding what they were investing in (and heaven forbid we actually expect people to understand what they are spending their life savings on!!).

But here's the thing. Part of the reason they don't understand what they are buying is because they have no interest in understanding (in essence, I think the willful ignorance argument applies equally to them). All they are worried about is missing out on an easy opportunity to make money. A lot of HK people (and I include the uncles and aunties in this) are terrified of missing the boat. So instead of evaluating what they want and what they should do, they just assume that if someone else bought it, it must be a good thing.

"This complete stranger I met during lunch bought some minibonds. It must be a really good investment! Lets cash in as well. Wait! If we put all our life savings into minibonds then we can earn an even bigger return and be even richer. Hoorah!!"

Another cause for consolation is the fraud angle. Were the mini-bonds misrepresented by unscrupulous salesmen? I'm sure that in many cases, they were. Of course, we don't know the extent to which they were mis-sold - was it fraud or just the usual hyperbole of salesmen? Obviously, if it was fraud, then the usual legal recourse should apply.

However, the point is that, as an investor, you really need to understand what you are investing in regardless of your age and literacy. And if you don't understand the product (perfectly understandable considering the complexity of modern financial products), then you really shouldn't be investing in that product at all.

Let me repeat that - if you don't understand the product, you shouldn't be investing in that product at all.