Goldman Sachs, this last Friday was shocked to find themselves at the end of litigation from the SEC that they had misled investors about complex securities sold to investors.
Internal e-mails were cited as the federal government charged Goldman Sachs with playing loose with the rules. The merits of these charges will be determined in the weeks to come but, for now, it's important to take a look at the lesson one can learn from this latest turn in the financial crisis.
The key lesson from the headlines over the last 24 months (including last week) is that the buyer must be acutely aware of any assets risk/return characteristics and not trust an institution or a rating agency to watch out for their best interests.
Due diligence is required when choosing investments and just because an asset is touted as safe or guaranteed, investors should conduct independent research to determine the merits of the asset.
No matter what you are told by anyone (ANYONE) you need to be comfortable with the assets you invest in. Understand and ask questions. Demand disclosure. Don't assume those selling products or strategies necessarily have your best interests in mind.
After all, if it was such a great deal wouldn't they be keeping it for themselves rather than selling it? Be skeptical and look carefully before you leap.
Goldman Sachs is a firm that is decisive and smart. They certainly did suffer their share of troubles in the financial downturn (the interest paid to Warren Buffet on his investment is not cheap).
Goldman, as it was pointed out on Friday, lost money on the asset in question. We should be not too quick to judge without seeing all the facts. Guilt must be proven first. But, regardless of the outcome of the litigation, the lesson remains: be careful. Be skeptical and careful as an investor.
As investigations go on for years (into many financial institutions), we will see that a lack of oversight resulted in losses for investors. And this reality, despite the false promise of safety from regulators, underscores the importance of that great consumer truth; buyers beware. It's your money and only you are the ultimate guardian over your net worth.
Ronald Reagan once said, “trust but verify." This held true for the Soviet Union and this is the same lesson investors should embrace as they invest their hard earned savings. Trust but verify.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at email@example.com.