Close your eyes and invest

10 Dec

A complex and confusing financial document appeared in my mail recently. It is an offer, via Fidelity Investments, from an entity named Eksportfinans.

The people who watch MSNBC may be familiar with it but I am not. I’ve been investing, poorly, since my early 20s but cannot figure out what is being offered. The document begins with a mention of securities linked to common stock, with Apple among them. In these mentions are interest rates of 13 percent and maturity dates of 2008 and 2009.

Both the interest and the maturity dates seem out of date. I must somehow be missing the obvious.

Inside the quarter-inch thick booklet it says, “The yield that you will receive on your securities, which could be negative, may be less than the return you could earn on other investments.”

Now that sounds right, as does this:

“ … you bear the risk of losing some or all of the value of your principal if a knock-in event occurs during the term of the securities and the final stock price is less than the initial stock price.”

The term “exotic financial instruments” has been used a great deal in the past few years, generally to describe investments that are expected to make lots of money but impossible to understand. It is beyond me how anyone thought they could collect from a security based on sub-prime mortgages. (More confounding is that mortgage brokers received higher commissions for sub-prime mortgages than for less-risky ones.)

Just for the fun of it, I intend to look into Eksportfinans. But clearly, something perverse is going on  and it apparently has been for sometime. I don’t think any lessons have been learned from the great stumble and fall of 2008.

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