Yesterday I was looking at the lists of top 5 news stories from various Murdoch rag sites on the Courier Mail homepage.
One story on PerthNow caught my attention with its title:
Getting rich: the basics
An odd time to be flogging 'getting rich' stories, I thought, given that the market tanked last week like it's 1929. I clicked on the link in order to investigate further. Turns out that author John Synott had written the piece back in June. Here's how John suggested we all 'get rich':
Borrow to invest, eh? Oh that's clever! Put money that isn't yours into shares and watch it grow... or shrivel away to half its original worth. Then you not only owe someone else twice as much money as you now have, plus interest on the original amount. Oh happy day! Never mind, I'm sure everyone who followed John's advice knew exactly when to pull 
See, in the short term, investing in the banks probably wasn't such a good idea. It hasn't exactly been a good year for the stock market in general, and the banks have copped the worst of it, yet John Synott saw fit to direct average-Joe PerthNow readers to borrow money to invest in them. It has been obvious for some time that the banks were engaging in bad practices and getting themselves into trouble. The Australian banks have been better behaved than overseas banks, courtesy of government regulations here, but even they were burned after exposing themselves to sub-prime loans and risky lending practices.
It gets better- in step 3, Synott uses the word 'crash' in inverted commas, as if the share price doesn't matter. Does he even realise that if the capital disappears, dividends from a particular stock aren't going to be enough to pay back the money borrowed to invest in it? In step 5, Synott recommends borrowing against the family home in order to buy shares, because it's tax-deductible. Yeah, and if the shit hits the fan, you lose your house. How irresponsible to even suggest such a thing.
So does John Synott still have a job? Are the Murdoch rags still paying him to dispense patently bad advice to their readers? I hope he's hired a food taster and someone to open his mail, because I imagine anyone who took his advice back in June and borrowed money to invest in shares (particularly if they borrowed against their home) is really really pissed off right now.
11 comments:
It's not necessarily bad advice. Just poor timing. To be perfectly fair, he did state a number of times that stock market investing was a long term business. *shrugs* Works for Warren Buffet.
buffet doesn't borrow his capital, if and when he did it would be on terms he would negotiate with the bank, not the other way around. borrowing capital to gamble on the stock market is always a dumb idea.
Yeah, I'm sure Warren Buffet borrows against the value of his house in order to buy shares. There's a reason there is only *one* Warren Buffet, anon- and John Synott is no Warren Buffet. I don't think Warren Buffet would *ever* advocate that regular people borrow, let alone borrow against their homes, to invest in the stock market. He's a pretty sensible guy.
Sorry, to clarify I meant share trading worked for Warren Buffet, not the borrowing to invest.
The thing is, in good times, it's a perfectly allowable way to lower taxable income, because the interest is deductible, and it has been a great way for some people to earn money. It doesn't and wont work for everyone, but then again, what does?
It's easy to look back on things like this now and say "Oh ho! What douchebaggery!", but you know the line - hindsight is 20/20.
Well that makes more sense... I'm not anti-investment by any means, but in my opinion, advising the general public, who may or may not be able to afford the losses, to borrow to invest in shares is hugely irresponsible.
"It's easy to look back on things like this now and say "Oh ho! What douchebaggery!", but you know the line - hindsight is 20/20."
that was in june of this year. anyone suggesting borrowing money to jump into the stock market just at the start of a downturn, in the middle of a liquidity crisis, is an idiot.
I remember back when the Telstra 2 share offer came out;tra was trying to get us employees to buy lots of shares at $6.70. In an official staff briefing, they tracked in a Comm Bank man who suggested that we all take out margin loans to buy T2 shares. For the uninitiated, a margin loan is used to buy shares and if the value of the shares dips below the level of the loan, the bank instantly demands you pay cash or sell shares to reduce the value of that loan. A lot of people got caught up in this "official" investment advice and lost a bomb when the price dipped to below $4.50. Always look out for the pseudo-experts. Most of them are not stock-market billionaires.
Oh my goodness... well, if that's not a good example, I don't know what is. Wow.
btw I'm not sure the poor timing excuse is apt...the article is dated June 2008. By then the Us had been in recession for a quarter, bear stearns had already collapsed and the US ARMs (subprime mortages) which the banks were investing in heavily, even here, were started to dissolve for everyone, reducing bank stock returns. Still point three was a comparatively good one. n.
anon - agree completely. The current crisis was well identified as of Oct 2007 (yes 2007) as probably the worst financial crisis in over 50 years.
Anyone offering advice in leveraged investments in June 2008 is more than borderline criminal. If they were to offer this in the context of a professional relationship, it would very likely be criminally negligent.
What it's doing in the paper is beyond me.
Yup. From Peter Hartcher's column today:
It was February 29, 2008. The US financial crisis was under way, but the first of the great Wall Street investment banks had not yet collapsed. The Australian stockmarket index, the All Ordinaries, stood at 5674 points. America's Dow Jones index was 12,266.
Two weeks later the US Federal Reserve intervened to save Bear Stearns from insolvency.
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