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Monday, September 22, 2008

My Opinions On Recent Credit Linked Securities Losses

The recent collapsed of investment bank Lehman Brothers and several money losing banks like Merrill Lynch, Morgan Stanley, etc have resulted many losing huge savings invested on so-called "safe" structured investment products promoted by banks' Relationship Managers (RM). These credit linked securities e.g. Minibond, Pinnacle Notes and High Notes are highly sophisticated. One of the most high profile ones is DBS High Notes 5 which is at risk of a zero payout after Lehman Brothers filed for Chapter 11 bankruptcy.

I personally prefer investing in those that are more transparent and simple like Stocks and Shares, Unit Trusts and ETFs. I believe these are better managed and simpler. I do not believe in structured investment products whereby there is said to be "guaranteed". I believe nothing is guaranteed when it comes to investment. Stocks and shares with strong fundamentals like the blue chips, well-diversified Unit Trusts portfolio spread, and ETFs are safer and are more likely to grow when invested for long term. Moreover, dividends returned from stocks, UT and ETFs are more transparent.

There are already many resentments over the misleading selling of complicated structured investment products that have caused many including senior citizens losing substantial percentage of their retirement savings. In certain degree, I do feel the Relationship Managers are partly at fault but I believe if there is no demand, then there will be no supply. That's how economics works basically - Demand meets Supply. I strongly advise consumers to commit only when they know what they are doing. This tip is applicable not only on investment but also on all things. Once committed, the consumer is deemed to have understood and agreed to all underlying mechanisms. Banks and financial advisers marketing these credit linked securities should present all risks involved. Both sides must do their part.


  1. Take note that there is a difference between "capital protected" and "capital guaranteed". Although both sounds similar, but a lot of people fall into the trap to believe that they will get back their capital guaranteed no matter what under "capital protected" structured notes. Look for "capital guaranteed" instead of "capital protected" if you do not want your hard earned money down the drain if something happens.

    the difference is discussed in the following forum:

    You might want to find some information for the definition of financial terms.

  2. @regine

    Thanks for the input. I have used the term "guaranteed" and perhaps I could have used protected instead.



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