During Morningstar’s Investment Conference in Sydney yesterday, Morningstar Asia Pacific managing director of research strategy Anthony Serhan asked Mr Lambert about his thoughts on gearing as an investment strategy.
“Well, being an older banker and an accountant, you understand the problem with gearing and the risks of gearing,” Mr Lambert said.
“I believe in gearing [although] I don’t have any at the moment.
“I geared Commonwealth Bank [investments] when I didn’t need to, and that was a pretty good investment. But I use gearing,” he said.
However, despite the problems that gearing can have, Mr Lambert then went onto say he was “always surprised” about the theory that gearing led to Storm Financial getting into “trouble”.
“The problem with Storm was not gearing but it was how it was used and all that. The biggest problem of all was their licence,” Mr Lambert said.
Further commenting, Mr Lambert recalled a time, whilst running his business, the gearing strategies his advisers recommended for their clients.
“Gearing was allowed but they could only gear conservatively,” Mr Lambert said.
“I remember we kicked out one adviser in Melbourne, and he was so strong about gearing he believed every one of his clients, including pensioners should gear.
“When we told him that wasn’t on, he didn’t like it so it was best he just went somewhere else – I think he is now retired,” he said.
“Mr T” hits the nail squarely and on its head! However I think this article is so poorly written that it’s hard to work out what Barry actually said on this occasion. He may have been alluding to his view that Storm should have been Count advisers or he may have been heading in the direction of saying that the licensees were incompetent…we may never know. But we do know that Barry made his big bucks by following the line of what’s best for Count and to be fair it’s been OK for most of those who followed his path. My own view is more simple: if you NEED to gear you can’t afford the risk and if you can afford the risk you don’t NEED to gear. Margin loans are always wrong (in my view0 because if you want to borrow to invest you should own your home outright and then use it as collateral. If you don’t wish to do so, you’re probably right – the risks are too great when it’s your home at stake. If you’re OK with that, then at least you’ll pay attention!
I don’t think thought leadership is one of your strong points Barry.
Totally agree. Gearing, as a strategy, isn’t in itself a problem. The inappropriate and unethical recommendation of the strategy by Storm’s advisors, to multiply the commission dollars (at the expense and risk of the mostly clueless retirees) is the real issue. Don’t blame the sword, but rather, the wielder.
Did Barry Lambert amplify what he meant by Storm’s licence being the biggest problem of all?
Many of the Storm clients knew what they were investing in and the associated risks, tried to hit the jack-pot and failed.
The problem was a total lack of ethics and integrity, backed up by regulator and association negligence and topped of with a large serve of greed.
I believe there were a number of problems with the Storm model, but as has been correctly stated the problem was in a nutshell ASIC.
It would appear the main problem behind ALL investment scams or bad advise is ASIC failure to identify the problem when they are made aware of issues and then a failure to act. Why is there not a Royal Commission into ASIC ???????
Really, so triple gearing isnt a problem? Thats what Storm did. Storm and its advisers, the clients, ASIC, the banks and the FPA are all responsible. Greed and incompetence, you pick which one was which.