Don't bully the fat prospectus

I’VE checked the stats really carefully. There’s zero correlation between the number of pages in an offer document and investment performance. Fancy that, no correlation. Yep, you can make money from a fat prospectus and lose it on a skinny one.

So why is the Australian Securities and Investments Commission (ASIC) worried about obese offer documents? It has to be, given that its statutory mission is to promote informed participation in financial markets.

But informed participation is a dumb goal and I’ll tell you why.

For me, it’s all about the money. It can’t buy me love, but I’m investing my superannuation, not looking for a meaningful relationship with an adventurous, outdoorsy Piscean.

What does the bottom line look like? That’s what I want to know. If I get a choice, please, can I be a dumb profitable investor rather than an informed loss maker?

So, dear fund manager, when you write to me, skip the bit about how we’ve all had a challenging year and get to the part where you tell me how many sizes my super pants have shrunk since last year. That’s what I’m interested in.

I’m not trying to be a wowser. I really like the sound of informed decision-making. It rolls off the tongue well and pushes all the right buttons: independence, freedom, democracy, self-determination. Great stuff. I love it, except for the fact that it is unobtainable.

No one understands most of these investment products. Anyone who thinks I can spend 10 minutes reading 10 pages and be informed has seriously overestimated my capabilities.

The masters of the financial universe who brought us credit default swaps were probably better informed than me. I’d hazard a guess that they had a bit more economic theory and practical experience under their belts.

All that informed participation at the top didn’t help anyone, so how can it help me? But using a smaller scale than the global financial crisis, no one has yet been able to explain to me how I can make an informed investment decision between two equities funds by looking at two offer documents. Seriously, I like the one with the red cover and nice pictures, but the other guys have such a cool name. Or, maybe I look at their past performance?

‘No way,’ says ASIC — it’s not a reliable indicator of future performance.

Well, what is?

Nothing. Absolutely nothing. That is the crux.

Investing is really tricky. Nobody knows what’s going to happen next. But, even if there are a few geniuses or clairvoyants among us who do, they’re not going to share their financial secrets with a nincompoop like me. When it comes to investment decisions, for most of us it’s pitch black and we’re strapped into an economic roller coaster that’s going a bit faster than full tilt. Hopefully whoever’s in control (if anyone is, it’s hard to see, it’s so dark) will tell us when it’s time to get off.

Don’t just take my word for it, have a look at your own super. I’m sorry to be the one to break the bad news but, let’s face it, if your investment adviser knew how to turn lead into gold would she be advising you? I don’t think so. She’d be reclining on the back of her hundred-foot motor yacht in the Mediterranean, throwing back Bollinger and scoffing Beluga by the ladleful.

So why does the Government and regulator try to kid us? I know they’re not serious about informed decision-making. If that was their goal, it would be too easy. You want to become a client of Opes Prime? No problem, first just explain the difference between a margin loan and a stock lending agreement. You want informed decision-making? The only investments left would be the ‘Under The Bed Zero Coupon Bond’.

Just for argument’s sake, suppose I really understand the investment basics, it’s still a dumb idea to make informed decision the basis of our financial regulation. Just between you and me, my investment decisions suck. So I certainly wouldn’t want to be relying on my investment acumen in order to pay for food, shelter and heating when I’m retired and vulnerable. A little bit of knowledge is a dangerous thing, and the truth is, when it comes to investing all we’ve got is a little bit of knowledge.

It’s no surprise that investors think offer documents are long and complicated and that they want interesting, shorter documents with fewer financial terms. My kids want toffee apples just before going to bed. You guessed it, they have to learn to live with disappointment.

The fact is that informing yourself is not a spectator sport. It’s hard work and takes a long time.

My suspicion is that this informed decision-making is just the blame game frocked up. An investor loses money? Don’t blame the Government/regulator/financial adviser, you chose the junk yourself.

But the wooden stake through the heart of informed decision-making is that even if I do make an informed decision, that won’t stop me making losses. And if minimising losses and maximising gains isn’t the objective of the regulation, why not? Why is the journey (informed decision-making) more important than the destination (we all make money)?

So Kevin, let’s focus. Let’s come up with a new goal. What about making as many Australians as possible financially independent? Fat (in a fiscal sense) and happy Australians, that’s what we want.

Have we got a deal? You come up with a smart new goal for ASIC. I’ll have a word to the fat prospectus. Time for a diet, a couple of spin classes and no-fat diet shakes. I’m sure he can drop a couple of kilos around the love handles. But if you’re expecting Jennifer Hawkins and soaring investment returns, you’re dreaming.

James Lonie is a partner at Henry Davis York.