Five Painful Stock Market Lessons

Supasap: civil service pensions, like the state pension, are non-funded. This means that the government has made a committment to pay these pensions but has set aside no specific fund to pay these from. The cost will is met from general taxation as and when it falls due.

In my knowledge it happened before, back during the dot.com bubble : balance sheet assets containing fictitious figures, in those days "intangible assets" up to billions of pounds , to offset REAL liabilities...

These days you have a British bank with 500 BILLION assets in Nov 2008 and 1.2 TRILLION in FEB 09.

It is all fiction, it can not be traced back to any solid asset whose value anyone could guarantee.

This "fiction" creates "profits" and "losses" as the accountants and their bosses see fit.

You talk about leverage, but here we are all being aksed to invest on fictitious balance sheets which make any discussions abotu forward earnings meaningless.

As a matter of fact the situation is so ludicrous that it defies belief that people are still invsting in the stock market.

What do I mean? In December 07 a big bank hands out 4 billions in dividends, then two months later in goes into a raise of 4 billions, diluting the shares and incurring huge costs. 8 months later another capital raise of 8 (or was it 12) billions, agaim incurring costs. This is 12 real billions against a (fictitious) bakance sheet of 500 billion (at the time).

An 8 year old child would ask:

1. Why did they hand out 4 billions in dividends only to beg for the money back 2 months later? Imagine the shareholders paying tax on the dividends and then seeing their shares diluted... Did they not know that they'd much better keep their money and avoid the public offering ?

2. How does a puny 4 billion sit against a backdrop of 500 billion (now 1.2 trillion) ? It is ludicrous. It's like saying "I have 1200 pounds in my pocket but I will perish unless you lend me 4".


3. All other banks "suffered" similar issues. From glory to bust within weeks.

4. Not to talk about the regulator letting banks lend to companies in which they hold shares or which owe them as well.

5. Supposing you come around to buy my house and I say "it is worth 1 million". You may swallow that. Now supposing you want to buy the whole village and every villager wants 1 million. You know there is not enough gold in the biggest vaults to buy the village at 1 million per house, but you are not really buying anything, you are just "valuing".

All those balance sheets are pure fiction, profits and losses are pure fiction, and a simple read will show you how much of a make believe world this is and how all investors and PENSIONs are simply gamblers.

Most Local Govt Final pension schemes have quite high pension contributions - old Firemans pensions scheme was 11.75%, newer one is 8% but retirement age has increased to 60 - bit worrying getting a grand dad to rescue you.

Perhaps one can amend Bruce's comments a bit - i.e. "too much" debt, etc. is bad. I agree about the "greedy" view; leverage, in particular, immediately says you're after a quick price hike, which is typically gambling/greedy.
"What to do now"? Well, especially after Andyg44's comments and other market factors, probably the best investment strategy for now is just to try to preserve capital, not try to increase it.
"Pound cost averaging" - principle fine, but in volatile times, don't just do a standing instruction to buy at month end - the price at set dates can be just briefly the wrong way. You have to look at the price and decide which way the prevailing trend is likely to be, *then* buy accordingly.
Everyone seems to beef about state pensions. Valid beef, and sooner or later things may get bad enough that govt will have to rectify matters.
More interesting to me at the moment is, why is there so little comment about the auditing profession over the last few years, if not longer? I would love to have someone explain to me why they don't have some responsibility in all the banking traumas worldwide. They did have in the Enron saga, what's the difference now? Or is there a cover up, in case the lot of them become exposed as essentialy useless for risk management purposes.

As someone who receives a local government pension, I am happy to confirm that my pension scheme is funded by contributions by both employers and employed. There are a number of different funds, most covering a number of local authorities, and they are professionally managed with investments in U.K. and foreign equities, in fixed interest securities, in property, and with hedge funds. There are actuarial valuations of my particular fund every three years, the last in March 2007, when the total value was over £2 billion, but the fund was forecast to be in deficit over the longer term. Payments in were higher than payments out, so the fund was still growing, but it will have lost value since. The average contribution proposed for the years 2007-10 was 16.6% of pay, of which about 6% is paid by the employee out of pre-tax income.

There are a number of different public sector pension schemes, and much wrong information is put out about them. If you want to know more about the local government scheme, then I suggest you look at www.lgps.org.uk or at www.avonpensionfund.org.uk for an example of a typical scheme.

Incidentally, the average pension paid by the Avon Pension Scheme in 2007 was £4201, hardly the "gold plated" of popular tabloid myth.