While gearing as an investment strategy has its “problems” it was not the direct means of Storm Financial’s collapse, says Count Wealth Accountants founder and Countplus chairman Barry Lambert.
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.
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