Embracing risk, reaping rewards
The Sterling Report
MOST persons, when they hear the word "risk", think of either a massive impairment in their assets or a total loss of principal. But those of us who know better, know that risk is an opportunity for reward. We know the stories of the Warren Buffets and the George Soroses who consistently use risk as their means of accumulating wealth. Some of our own clients, too, who have been wise enough to heed our advice, have used risk to their advantage and have earned significantly from their investments. The question that arises then is how to assess risk and determine if it is worth the potential reward.
A good assessment of the risk is first needed to make this determination, but how does one make this assessment? Apart from getting a good/trusted financial advisor, a savvy investor will need to get all the information he can on the issuer as well as the instrument. This means audited financials, annual reports, newspaper articles, credible online sources eg Bloomberg.com, and any other relevant sources available. A discussion with the principals will also prove useful.
For some investors, this will be a most daunting task, especially if they lack the ability to adequately understand the financial material they have unearthed in their research, as well as the implications of the information they have garnered. This often leaves investors with little option but to depend on a trusted advisor, though sometimes they are a little cautious and many times are even sceptical.
However, in our world of scammers and con artists and just plain dishonest personalities, it is very understandable when investors become sceptical about investing their funds, especially with persons whom they do not know.
One way that investors can overcome this unease is to approach the regulators of the particular industry. While a regulator will not (by its own policy) be able to say that a dealer is a safe place to invest, it is nevertheless able to say whether there are any reasons that an investor should exercise caution in doing business with a particular dealer.
Another action that an investor can take is to attend the Investor Briefings organised by these investment houses. There they have the opportunity to hear the discussions between the company's various investors and the representatives of the company. They also have the opportunity to ask their own questions, both of the dealer and of the dealer's investors who are present. They may even find that they know persons in attendance who will be able to give them first-hand information on how they have been treated by the dealer, as well as how their investments have performed over the years. Investors will now have more information on which to make an informed decision.
Regardless of what some persons may think, fixed income investments can impact the economy in a positive way. For example, they provide the capital needed for companies to grow. The more money a company makes, and the more it grows, the more it is able to employ additional workers, thus reducing unemployment. Also, specifically with regard to non-domestic investments, funds invested in foreign bonds earn interest which is paid out by foreign jurisdictions to our local economy. Local investors can spend these funds locally to boost domestic demand.
Pamela Lewis is vice-president, Investments and Client Services at Sterling Asset Management Ltd. Sterling provides financial and advisory services to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: email@example.com or visit our website at www.sterling.com.jm.