FTX proves my caution was justified
Ialways warn young colleagues that they cannot pay their school fees from their client’s pension. In other words, do not gain your experience at a customer’s expense.
Investing other people’s money is a demanding responsibility that should be discharged with the utmost care and consideration. You can do what you want with your own savings, but taking needless risks with clients’ money is unpardonable.
When advising clients, I subconsciously question whether I could defend my recommendations in a court of law.
Have I thoroughly researched the business? Can its fundamentals stand up to expert scrutiny — its products, services, management and financials? Am I acting impulsively or genuinely believe I am doing the right thing for my client?
Did I corroborate my views with other specialists? Can the companies selected withstand an economic shock or market downturn?
Mastering the daily vagaries in financial markets is impossible, but mitigating the risks of a major fallout is not. Regularly, I examine whether the reason I bought a security is still valid.
Over the past couple of years, I have been drawn into discussions about cryptocurrencies. I have scant knowledge of the complex workings of the crypto world, and still struggle to make sense of what these tokens represent in the realm of finance.
But because of my years in the market, I was identified as an easy target for the young devotees of these encrypted algorithms to tease, and in each podcast, webcast and forum in which I participated, these smooth-talking adherents would eviscerate my primitive approach to investing.
Cool and composed, I would claim I was open to any new investment idea, as long as it measured up to the standard I demanded and traded on a recognised and regulated market. Despite the slurs, I was never persuaded to redirect even a small percentage of a client’s money into this digital asset.
In my mind, each percentage of a client’s funds deserves an equal level of attention. For that reason, it escapes me that so many celebrated institutions were caught by the collapse of Sam Bankman-Fried’s FTX, even though they assert overall exposure was minimal.
Stakeholders have every right to interrogate the processes that steered these prominent fund managers into this failed operation, whose collapse has been compared to high-profile blow-ups such as Lehman Brothers and Enron. Their arrogant indifference is a concern, and raises doubt about the value of their due diligence practices that could easily be present in other areas of their enterprise.
My grievance is not with the concept of a digital currency, but rather the notion of spending other peoples’ money on a whim. After all, it didn’t take long for the new management of FTX to establish that the business was a house of cards and that Bankman-Fried was unskilled, hopelessly inexperienced and possibly criminal.
Nor can we forgive the media for their superficial coverage of Bankman-Fried as an iconic symbol of the up-and-coming leaders in the crypto industry.
Investment is a long game. It is not speed-dating. Choosing a security is similar to building a relationship. It takes time, patience, observation and insight. Dropping your guard for a onenight stand can ruin your reputation and get you into trouble.