Tuesday, March 27, 2007/
When will investors learn that very high returns also carry very high risk? This week’s collapse of Fincorp demonstrates how good times can cloud judgement.
Fools and money
A fool is soon parted with his money. And this week we had a dreadful reminder of the truth of that saying when administrators were appointed to the Fincorp group of companies.
Fincorp started as a minnow mortgage broker and then got into property development. Now it looks like a lot of people are going to lose a lot of money. When will people learn that interest rates are commensurate with risk? And there is always risk in property cycles. People become blasé when times are good. But it is when times are good that inexperienced people make poor commercial decisions.
There is an added danger. Many baby boomers are watching their superannuation mature and are coming into a lot of money which they won’t know how to manage. They are behaving like fools and will be separated from their money. Real estate is one of the most attractive areas where people can be conned. They think that bricks and mortar act as security.
But real estate requires a lot of patience and skills. Anyone lending money into real estate must be wary. People looking to take advantage of real estate would be better buying in their own right that lending money to real estate developers.
Remember Pyramid and Estate Mortgage? We’re going to see all that again. So please, everyone, be very suspicious and cynical of anyone offering high returns on real estate or investments!
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