GOLD OF FOOLS: PART ONE
- This story begins a long-planned series of articles by financial analyst Alexei Andrievskiy for PREMIERE Business Magazine, under the general title “Gold of Fools”.Pablo Picasso, during the celebration of his 90th anniversary, uttered bitter words:
“… Many become artists for reasons that have little to do with art. The rich demand a new, original, scandalous. And I, starting with cubism, entertained these gentlemen with absurdities, and the less they were understood, the more I had fame and money. Now, I’m famous and very rich, but when I’m alone with myself, I do not have the courage to see an artist in myself in the great meaning of the word; I’m just an entertainer of the audience who has understood the time. It’s bitter and painful, but it’s the truth …”
How much in common do these words have with everything that surrounds us today! A consumer is exactly the subject who turns the wheels of the market. He dictates what to produce by his own needs and wants: cheap, harmful, dangerous to one’s health, insanely motley, lean, musical, pseudo-rejuvenating, medicinal, promising, life-saving, super-profitable and so on.
The consumer does not want to think much, so he takes what is simplest and easiest, forcing 100% of the economy to move in his favour, while ignoring other individuals and sometimes trampling on real values.
I, in turn, would like to share my observations on what is happening in the private banking market – in the industry I’ve been working in for more than 20 years and in a world where private capital services are provided. In particular, it tells much about how the consumer influences the creation of unreliable, sometimes dangerous, banking products for himself. I will also share the incredible scenarios that have happened to me and my clients in Swiss banks, I hope that they will not leave you indifferent.
What am I doing this for? To be honest, it is most likely for fun and for the sake of clarity, but there is a chance that one of you will listen to my experiences and find them both interesting and useful.
So, private banking is the private management of capital and it is something often mysterious, meaningful and even almost sacred.
Having achieved financial success, we are thinking how to preserve and multiply what is available. We are looking for banks, financial companies and asset managers that can dispense valuable advice that we can follow for greater prosperity. Of course, we would like to see the following picture: Maximum income with minimal risks.
Maximum income with minimal risks
In most cases, we do not care about the content or form of investment. We are only interested in income. Financial reports of companies whose shares are traded on the stock exchange, their rating, analytics and the growth potential of the sector in which the entity is engaged – few of us are really trying to understand all of this. We just trust the bank to create, for us, an investment product with good growth potential and capital protection. That is, you are asking the bank to create such conditions under which you could sleep peacefully and watch your investments grow nicely. In case of negative events in the market, you would at least like to get back what you invested.
If you want such a product, it will be made for you, you assume. Theoretically, if you want a shampoo for hair growth or a tablet to reduce weight, someone will supply you such a product and, moreover, in a beautiful package!
Investment institutions, in fact, discovered fertile soil for the creation of synthetic derivative products of questionable value, such as mutual funds, ETFs and structured notes. The consumer, in his greed and incompetence, pushed banks to create these complex derivative products, the risks for which are usually described in small letters in the prospectuses…and these products are sold all over the world, like hot cakes!
This class of assets are created, primarily, by banks to minimise their own costs for the use of asset managers and to increase the expansion of their offers in the market. The “packaged” product can legally be sold through a variety of brokerage and investment companies around the world.
What is the danger of using ready-made banking and synthetic derivative products? Why do big investors, such as Warren Buffett, never use them to manage their own capital? How can you create, for yourself, a quality investment portfolio that will make a profit? How can you ensure investment immunity, even in the event of bankruptcy?
I will tell about all of this in the next issue of “Gold for Fools”.
Alexey Andrievskiy, Financial Analyst
Andrievskiy Capital Group