Quintas Wealth Management
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Brendan Burgess
Founder
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Most (all?) of these capital secure bonds are terribly bad value for the investor. Avoid.
Brendan
Brendan
Brendan Burgess
Founder
- Messages
- 52,270
None of these schemes stand up when you investigate them properly.
You have to read them in detail and even then it's hard to find out the catches.
Check out the threads on the BCP Quadruple Growth Bonds for example which sold like hotcakes, but of course, never delivered anything like quadruple growth.
It really is simple. A company cannot guarantee a return of "5% to 8%" and guarantee your capital. Of course, you might get the impression from the advertising and the brochure that they are doing that. But you probably won't fully understand the product until it matures and you wonder why you did not get the return you were expecting.
Brendan
You have to read them in detail and even then it's hard to find out the catches.
Check out the threads on the BCP Quadruple Growth Bonds for example which sold like hotcakes, but of course, never delivered anything like quadruple growth.
It really is simple. A company cannot guarantee a return of "5% to 8%" and guarantee your capital. Of course, you might get the impression from the advertising and the brochure that they are doing that. But you probably won't fully understand the product until it matures and you wonder why you did not get the return you were expecting.
Brendan
Consistent good returns
A comment above in relation to returns of 5-8% p.a. got me thinking. This is a thought experiment and I am in no way suggesting funds out there engage in the 'strategy' outlined below.
If we saw a fund delivering say 7% p.a. on a consistent basis, it would surely pique our interest?
Recently I priced a 1-year put option on the S&P500. The cost was just north of 7%. Expensive insurance right?
But what if I wanted to sell this insurance, instead of buying it? I could earn a return of 7% for selling this put option, i.e. protecting someone else's down side if the S&P500 declines in value over a 1 year time horizon. If the S&P500 doesn't decline, the put option expires worthless and the game is on again next year. I do the same again and again, until such time as the market declines. In which case I am on the hook for the total loss.
The returns on a fund using this strategy might look outstanding for a period of time and gather lots of assets. Nassim Taleb referred to a strategy like this as picking up the nickels in front of a steam roller. The expected value of the stratregy is (very much) less than zero, but this fact is camouflaged by the appearance of low risk and steady returns. Madoff comes to mind.
Long winded way of saying that we need to be very careful when looking at what might be a long track record of steady returns.
A comment above in relation to returns of 5-8% p.a. got me thinking. This is a thought experiment and I am in no way suggesting funds out there engage in the 'strategy' outlined below.
If we saw a fund delivering say 7% p.a. on a consistent basis, it would surely pique our interest?
Recently I priced a 1-year put option on the S&P500. The cost was just north of 7%. Expensive insurance right?
But what if I wanted to sell this insurance, instead of buying it? I could earn a return of 7% for selling this put option, i.e. protecting someone else's down side if the S&P500 declines in value over a 1 year time horizon. If the S&P500 doesn't decline, the put option expires worthless and the game is on again next year. I do the same again and again, until such time as the market declines. In which case I am on the hook for the total loss.
The returns on a fund using this strategy might look outstanding for a period of time and gather lots of assets. Nassim Taleb referred to a strategy like this as picking up the nickels in front of a steam roller. The expected value of the stratregy is (very much) less than zero, but this fact is camouflaged by the appearance of low risk and steady returns. Madoff comes to mind.
Long winded way of saying that we need to be very careful when looking at what might be a long track record of steady returns.
Brendan Burgess
Founder
- Messages
- 52,270
Hi Gary
I am trying to understand your proposal.
You pay me €7.
I agree to pay you €100 in 12 months for the S&P500
If it rises , you won't want to sell it, so I have got a profit of €7.
If it falls by €20, I will have to pay you €100 for something worth €80. So I lose €13.
If it crashes by 50%, I will have huge losses.
I have not looked at the Quintas fund, but presumably it is capital guaranteed if that is how poster tech has described it. So how would your scenario feed into a guaranteed tracker bond?
I am trying to understand your proposal.
You pay me €7.
I agree to pay you €100 in 12 months for the S&P500
If it rises , you won't want to sell it, so I have got a profit of €7.
If it falls by €20, I will have to pay you €100 for something worth €80. So I lose €13.
If it crashes by 50%, I will have huge losses.
I have not looked at the Quintas fund, but presumably it is capital guaranteed if that is how poster tech has described it. So how would your scenario feed into a guaranteed tracker bond?
Brendan Burgess
Founder
- Messages
- 52,270
On askaboutmoney, you have been given analysis.
You are getting anecdotes from your friends.
If I told you that I had got 100% return by betting on a horse yesterday, does that make my next tip worth following?
Brendan
M
mercman
Guest
Quite simply, Anything that looks to be too good to be true, normally is.
Have we as a nation especially, learned nothing from what has gone on in the past 7 to 8 years. If any of the fund providers could possibly generate the kind of returns mentioned, they simply and factually would not be offering them to the open market. They don't need to.
There are billions available from Pension funds or Mutual funds to invest. Why would a fund Manager be trying to sweat money from Private Investors where they could simply offer their product to the trade with a lot less hasstle.
Have we as a nation especially, learned nothing from what has gone on in the past 7 to 8 years. If any of the fund providers could possibly generate the kind of returns mentioned, they simply and factually would not be offering them to the open market. They don't need to.
There are billions available from Pension funds or Mutual funds to invest. Why would a fund Manager be trying to sweat money from Private Investors where they could simply offer their product to the trade with a lot less hasstle.