Hobson: Beware Investments You Don't Understand

THE WEEK: Morningstar columnist Rodney Hobson doles out investment lessons to avoid another global financial crisis

Rodney Hobson 11 February, 2018 | 11:26PM
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Just when I had finally managed to convince myself that we are not in for a repeat of the 2007/08 financial crisis – at least not yet – up pops a bank with a scheme for causing misery and mayhem. Don’t even try to understand the senseless wheeze but there are some lessons for ordinary investors that are worth reflecting on.

It’s almost laughable, except for the victims

Credit Suisse introduced the delightfully named VelocityShares Daily Inverse VIX Short-Term exchange-traded note, which I bet even the bank’s directors didn’t understand, just as bank boards didn’t bother to find out what their sellers of extremely complex derivatives were trading a decade ago. All that matters to the bank is that it makes money selling to mugs who buy things they don’t understand – lesson one.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC362.25 GBX-0.37Rating
Royal Dutch Shell PLC B1,790.00 GBX-0.28Rating
Tullow Oil PLC51.62 GBX-0.81

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.