Wednesday, December 06, 2006
Proposed changes on securities market
In ST today, there is an article on some proposed changes to the rule of the securities market to both protect the investors and also to ease the regulation of offers of investments.
On the first front of protect the investors, I think it is high time that changes ought to be made to ensure that all financial advisors are to make all their charges and its impact known to the unwitting investors. In fact here, the financial advisors and the investors stand on two different extreme corners though many times, the picture is otherwise painted out to be. On one end, the goal of financial advisors are to fatten their sales and thus their cut. How can this be achieved if investors do not turn their holdings constantly? On the other end, investors want to maximize their returns, however, by constantly turning in and out, the ultimate returns will be lessened by the accumulated cut by the advisors.
On the other front of easing the rule of offers to investors, there is particularly one requirement that even the best investing firm in the world, Berkshire Hathaway, can never or has ever before achieve even at its gigantic size today. The requirement states, "Has carried out at least 40 transactions with a minimum total value of $200,000 in the last 12 months." In all years, Warren will be happy to even find one single great idea or investment to buy. Hardly can he even find more than 5 at any given year. As explained earlier, the more you turn over what you hold, the more you lessen your maximum returns. So this requirement goes against the basic of value investing. Though this rule is meant to protect all unwitting investors away from damage, the nature of it contravenes with what a well-heeled and knowledgeable value investor will practice.
On the whole, policies are made to cater to protect the majority which i totally agree with, so for the minority who know what they are doing, they do not get to enjoy certain type of cake. Well, it is always better to protect the majority than the minority though the well-heeled minority does not qualify. But they will surely have other type of cakes that can produce just as good if not better. So to say that the world is not fair or policies are always slanted towards the well-heeled, i beg to differ because it is not always so. I think it is pretty fair in this world that certain things are more protected towards the unwitting crowd from damage and some that prevents the well-heeled and knowledgeable people from making use of certain schemes.