Saturday, 4 October 2008

No such thing as a free lunch

Back near the start of the year, I was feeling a little poor. Like a lot of people, I’d ended up being a little overgenerous at Christmastime, and I started the new year feeling a tad broke. One morning, I noticed a poster saying there was a free lunch for junior doctors that day in the doctor’s mess. I’m all in for a bit of free food, so I made sure I was in the mess at 12:30 to tuck into the M&S sandwiches.

The lunch was sponsored by one of these Independent Financial Advice (IFA) companies. This meant that, while we munched away, we had to listen to their reps talk to us about the state of our finances and what we needed to do to “help secure our financial future.” I’d heard similar things from similar companies several times since my med student days and I’d become rather cynical about what these people say.

Basically they bang on for about 20 minutes telling us loads of stuff we know already, then they start talking about how expensive university/mortgages/living costs are and then they try and flog us payment protection insurance. Daniel and Jane, the IFA reps, were no different. They were very charming, very attractive, wore nice suits and had expensive-looking haircuts and I could see how you could get swept along with all the “wise” words that they were saying.

Like I say, I was feeling a bit broke at the time and I was a bit more willing than normal to listen to any advice about how to make the money I earn go a little further. I booked an appointment and with Daniel a week or so later to discuss the state of my finances. I’ve heard for a long time from many sources that “over the long-term shares are a better investment that property” so I was quite interested in how the whole “investing in the stock-market” thing worked. Daniel and I met and I batted away his hard-sell of payment protection insurance and then I had a look at the share portfolio that he had put together for me.

He said that he’d selected “the investment funds that most suited my ambitions” and gave me a lovely portfolio containing lots of nice graphs and lots of stuff like “MultiPEP” and “+113%” and “convenient and tax-efficient way of investing” and there were lots of pages with lots of names and lots of numbers in very small print.

It all looked very impressive, but my problem was I still had no bleeding idea how it all worked. As far as I could see, the deal amounted to me giving Daniel £50 to £100 each month and then I may or may not get more or less money back at some point in the future… perhaps. I really didn’t “get” how investing in shares worked, so I was a little loathe to put my hard-earned money into something I really didn’t understand.

I have a few friends who work in the financial markets and when I meet them they seem to be very successful but when they start talking about “P&L accounts” and “asset ratios” I get lost very quickly. I’m sure it’s not actually that complicated, but I’m basically not at all interested in it, so I either tune out very quickly or change the subject back to women and football.

Anyway, the long and the short of it is that I didn’t buy any shares and put my £50 each month into an ISA instead. To his credit, Daniel agreed that that was probably the wisest idea at the time.

Fast-forward now to last Thursday evening. It’s about 18:30 and I’m just arriving home from work. I look around my place and it’s an absolute tip. I will confess that I have a tendency to go to seed a bit when I have a big exam coming up but I decide enough is enough and dedicate the rest of the evening to tidying up. Guess what I find? Yup, the share portfolio that Daniel put together for me all those months ago.

I’ve been following what’s been happening in the financial markets with a dispassionate interest (I want everyone who feels sorry for the city bankers to put their hands up now… anyone?... anyone at all?.... I thought not) so I thought I’d look on the internet about what happened to the funds that Daniel had advised me to invest in.

Guess what? Every single one of them was down by between 15% and 40% over the last year. If you include Daniel taking his fee and the fund managers and taxmen taking their cuts I would have been left significantly out of pocket. Now despite what you hear in the press, I don’t actually earn a vast amount of money and I would have been seriously pissed off if I’d decided to invest at the start of the year, especially knowing that my money had probably been spent by City Boys pouring Kristal over stripper’s arses in some lapdancing club in Soho.

Now, from what I understand, banks like Northern cRock, Lehman Bros and HBOS got themselves into trouble basically by investing in thing they don’t understand and as I sit here typing this, I feel like patting myself on the back for not making the same mistake that they did.

The other point I want to make is that it is Daniel’s job to pick the best places for me to invest my money. I have no idea if he’s still doing that job and I have nothing personal against the guy, he appeared to be a really nice bloke but he’s meant to be an expert. He earns a living and buys expensive suits on the basis of his “expertise.” The question is… If he can get it as badly wrong as he has done, do I really think that he’s competent in his job? If I did as badly in my job as he’s done in his, I shudder to think what might have happened.


Hospital Wallpaper said...

If I did as badly in my job as he’s done in his, I shudder to think what might have happened

You can stretch this a bit and apply it to Peter Mandelson too, if you had done what he had done would you be getting a 3rd chance of being a Doctor? (And a seat in the House of Lords to boot?) I think not.

...tom... said...

The other point I want to make is that it is Daniel’s job to pick the best places for me to invest my money.

True, but what he was selling is all long-term stuff. He was not going to be able to afford his next haircut if he told you to park your money under your mattress or put in an interest-bearing bank account.

Get back to us in thirty or forty years and let us know how it all would have worked out ...if we are all still around then...

' whose eyes also glaze over when the financial talk starts . . .. '

Tanith said...

You write very well.