Equity portfolio still down 30% from before the 2008 crash?

Silvius

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I had a chat with a retired couple today who had a very large investment portfolio before the 2008 crash (circa 7 million), managed on a discretionary basis by a prominent investment house. They say the portfolio as a whole lost 70% of its value during the crash as they were heavily in Irish and UK bank shares. They decided to 'stay the course' and it has since recovered 40% of its value. They are still loyal to the investment manager and don't blame him at all as they feel that everyone lost big in the crash and these are just the risks you take in the market. These are intelligent people with plenty of investment experience. I'm trying to make sense of this but can't understand it - surely the investment house failed to diversify adequately to protect them against such a huge loss and surely the portfolio as a whole should have recovered by now? What am I missing here? I'm a nervous investor at the best of times and stories like this give me the heebyjeebies!
 

Brendan Burgess

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Depending on the proportion of bank shares, it would not have recovered.

A lot of people thought that holding AIB, BoI, permanent tsb and Anglo was diversification.

Brendan
 

Boyd

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I'm guessing being retired with the remaining 3 million helps soften the blow......

they were heavily in Irish and UK bank shares...................I don't see how it would recover.
Really?! AIB shares were E23 in 2008 and were 34c in 2010 and are now E1. If they were "heavily" vested in bank shares that dropped 98% of their value at one point, recovering 40% of the overall portfolio is probably good going and a testament to the non-bank stocks they had.
 
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Silvius

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I guess it does, that's not really the point though is it? Do I detect begrudgery?! I understand about the collapse of bank shares but I can't understand how one of the big investment houses, with a discretionary mandate (no pressure from the client to invest in anything specific) would have had a portfolio of this size so overweight in bank shares and so undiversified that the portfolio as a whole wouldn't have recovered by now.
 

Boyd

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Yerra sure it wouldn't be an Irish money site without begrudgery :p

I'm guessing they also had alot of property in the portfolio as well, which would have been a double whammy. They are not alone in fairness, Gay Byrne was making the national news in 2010 about his pension being wiped out due to bank shares collapse. Would be interesting to see the breakdowns and percentages of what they owned, who knows, it might have been 50% in 4 bank shares as suggested by Brendan above....
 

Silvius

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All true! :) I imagine there must be plenty more who just don't talk about those kinds of losses. They're still fond of the investment manager, asked did I want his number....ah no you're alright thanks....o_O
 

joe sod

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But the banks were seen as safe havens back then, they were not affected by the dotcom crash which was the most recent big crash in 2007. Also they were performing brilliantly, great profits and dividends so investment managers were probably allocating way too much money to banks and too little to the underperforming sectors like food processing and dare I say it "technology", remember tech was hated in 2007.
Now the tables have turned 180 degrees, they are putting way too much money into technology and especially big U.S. tech and too little into everyone else even the banks.
 

SBarrett

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Depending on the proportion of bank shares, it would not have recovered.

A lot of people thought that holding AIB, BoI, permanent tsb and Anglo was diversification.

Brendan
A lot of people also thought Irish banks were "blue chip" stocks, which was never the case. They were always small cap stock which are much riskier than large cap stock.

Back to the OP, if that fund manager still has them invested in irish bank's, he should be sued. The reason you hire a professional fund manager is to make impartial decisions for you with a level of knowledge and expertise that you don't have. As AIB shares were falling from €23 to 34c, there should have been a point where he was thinking he has to get out. Also, these managers don't have total discretion on where to invest clients money. There is a house view that is put together by the analysts and the managers have to follow the house view. If the investment house still believes in Irish banks, they should be out of business. I find it unlikely that they hold this view, so you have to think whether this guy has gone rogue. This couple are probably now in a position where their bank shares are worth so little, they don't see much point in selling out. While they may never recover the amount they invested, they have some chance of making some return by investing in something else and offsetting the losses against other gains.


Steven
www.bluewaterfp.ie
 

Silvius

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I don't know if they're still holding any Irish banks at this stage, but yes, they were holding on all the way down to 34c or thereabouts. I'd say they have a much more diversified portfolio by now, the investment guy is still with one of the big houses. Yes I was surprised that he couldn't turn it around for them at some stage and end up with a better result 13 years later. As far as I remember Gaybo stayed loyal to his investment manager too and laid all the blame on the banks. I guess there are always some hot stocks and even the experts still get carried away with a particular sector, as Joe Sod says.
 

Sunny

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When you say one of the big houses, I presume you mean one of the big traditional Irish Private Wealth houses? Any investment manager that lost 70% of a €7m investment fund belonging to a retired couple should not be managing client money again. Financial crisis or no financial crisis.
 

cremeegg

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The reason you hire a professional fund manager is to make impartial decisions for you with a level of knowledge and expertise that you don't have.
That should be the reason, but it usually isn't.

so you have to think whether this guy has gone rogue.
Much more likely that this guy hasn't a clue, but he has a good suit and a pleasant manner. Not pushy but attentive. Those are the skills a successful investment manager needs. Knowing too much about markets is a little vulgar, (though of course no-one actually knows much about the future of markets).
 

joe sod

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Those are the skills a successful investment manager needs. Knowing too much about markets is a little vulgar, (though of course no-one actually knows much about the future of markets).
In other words he probably had a nice south Dublin accent, looked the part and was in the couple's social set, I'd say that's the demographic they come from since they had 7million to invest in the first place. But on the other hand the couple are not bitching and blaming others for their financial mis step they are taking responsibility for it themselves and have basically moved on. I just hope this guy hasn't bailed out of banks after all that to invest in technology stocks at this stage.
 

cremeegg

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In other words he probably had a nice south Dublin accent, looked the part and was in the couple's social set, I'd say that's the demographic they come from since they had 7million to invest in the first place.
That is exactly what I meant, just didn't want to be so blunt. :):)

To be a successful invest manager you have to tell people "you really must invest in X", "that is the thing to be invested in", "the research blah blah", because telling them that they should be invested in a diversified ETF as tax efficiently as possible is a) boring and b) unprofitable.

To talk like that you need either to be dim enough to believe it or a liar. A good suit and the right accent helps either way.
 

Allpartied

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I'm guessing being retired with the remaining 3 million helps soften the blow......


Really?! AIB shares were E23 in 2008 and were 34c in 2010 and are now E1. If they were "heavily" vested in bank shares that dropped 98% of their value at one point, recovering 40% of the overall portfolio is probably good going and a testament to the non-bank stocks they had.
Isn't it the case that the E1 value is not comparable to the E23 value. They are different shares. AIB converted 250 shares in to one share in 2016.

So, effectively the share held prior to the conversion is worth 1 Euro divided by 250, which is 0.4 cents.

I might be wrong, but that's my understanding.
 

LoveTrees

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I'm trying to make sense of this but can't understand it - surely the investment house failed to diversify adequately to protect them against such a huge loss and surely the portfolio as a whole should have recovered by now? What am I missing here? I'm a nervous investor at the best of times and stories like this give me the heebyjeebies!
That's why we have to keep diversifying in order to hit on the average of the growth of the sectors we prefer. Banking sector is still trying to recover
 

Silvius

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he probably had a nice south Dublin accent, looked the part and was in the couple's social set
Yes I'm sure he did look the part (in fairness, you wouldn't expect a senior wealth manager to turn up in a tracksuit and hoodie) but was also in a very senior position in one of the big, long-established Irish firms, and had a lot of experience, that alone would have inspired confidence.
 

joe sod

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I'd say they're taking a bit too much responsibility for it themselves!
Yes but it's their money so ultimately it's their responsibility even if the investment manager invested it badly, they could have withdrawn it and invested elsewhere in the last decade. When you invest you are always warned that your investments can fall as well as rise, they are still down 3 million but they have 4 million they were not wiped out . Lots of people were completely wiped out in the financial crash, in any case the iseq is still down 40percent from its 2007 high , even the ftse is still oscillating around the year 2000 levels.
 
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