NEXT Financial Crisis (A senior Citizen View II)
roopesh_kumar February 27th, 2009
I am sure all of us have been shocked with the recent revelations from the Satyam Chairman. And the fact that this fraud was perpetrated in a company of Satyam’s stature, with a listing in New York and with one of the BIG FOUR auditors worldwide (Price Waterhouse Coopers), makes you wonder who you can trust, and whose judgement you can trust nowadays !! The US equivalent of the same in recent days is the Madoff Ponzi scheme scandal, and Madoff used to be Chairman of the NASDAQ stock exchange!!
Learning is clear enough - there are NO safe companies, and one must especially be suspicious of those companies that have grown very fast (even if backed by phrases like ‘New generation’ and where there are rumours about the integrity/ wheeling dealing of the founders)! If you do not have the resources to investigate, assume the rumours are true is safer!
But Is this enough? At an international level, there are enough residents in Switzerland and US who thought that UBS, Citibank and Merrill Lynch were bluechip. There are no issues on fraud, but judgement is suspect there now - a lot of money has been lost there by pensioners, who thought this was among their safest investments, and some probably put most of their savings in here. Closer home, ICICI Bank dipped its toes into this as well, didn’t do its share price any good. HSBC seemed to be steer clear of the mortgage crisis, but got entangled in the Madoff case!
So again the question, what do I do? I guess one has to assume that you cannot trust anyone, and remain diversified - even if you are in blue chip stocks. Ideal is to invest though mutual funds as far as possible, they are always diversified therefore even if there is a loss on a particular company, you don’t lose the shirt off your back! Be conservative in your choices of investments as well, so maybe multiple mutual funds with different types of investment plans…