Terra Securities files for banckrupcy

Terra Security closes all operations. So what, you may say, who are they?

Since you most likely do not know Norway and things going on here, a quick update is on its place. 

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A couple of weeks back, the news broke that four small municipalities had invested in a hedge fund brokered by a Norwegian investment broker, Terra Securities. Not only had they spent their cash on the investment, they had borrowed a large amount of cash to do so (10MUS$). 

Why? The Terra Security sales guy had showed they the prospect of a USA based high-risk investment opportunity. However, the translation removed some of the information - leaving high profit, not discussing high risk. So the municipalities claims that they only saw a great opportunity, not risky or even shady business.

So lets review this. A bank approaches you with a highly profitable investment opportunity. DING-DING! High profit means high risk. So be careful, right?

Next, the bank tells you that this opportunity is so good, and offers you a huge loan so that you can make a big investment. DING-DING!!! How is the bank making money? By lending money. By charging fees. By skimming your investment interests.

So - unless you are a vivid investor, and knows your way around gearing and other financial tools, you would back down and walk away, right? Most of us would.

But as always, some of us are dumber than others.  

And it may seems like the more stupid amongst the Norwegian population are located in the North. In four small municipalities who have lost some 100 M US$. And the number might double according to some reports. A large amount of cash. For most of us, and certainly for these municipalities. 

I am amazed. Ok, the bank most likely did break the law when marketing the hedge funds (as marketing hedge funds are illegal in Norway). And the sales guy most likely did push harder than he should have. But still, I bet the bell was ringing long and hard, and that he was the sales hero that year!

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So - for Terra Securities, this has gone from bad to worse.

What started as a pushy sale, has evolved into a nightmare. During the couple of weeks this has gone on in the media, the not so smart politicians turned the table and collected support from the media. You know:

"How could we know? We are poor, normal people. We do not know anything about investments!"

And media bought it. And kicked Terra Securities. And again, I am amused. The politicians clearly admits their error - making a stupid investment using borrowed cash. Still, they blame everything in Terra. 

"They should have known. They should have told us!"

Wrong. They are about making money. Not by making you a profit, but by making you buy their products. Which you did - both their lending services AND their investment services. A great sale, I would argue. 

You see, being a municipality means that you are responsible for your actions. It means you must accept that responsibility. You cannot invest millions of dollars one day, and then cry and blame your partner when you loose your money. That is just wrong. Stupid. Childish! 

One of the first principles of investment is to never invest more than you are willing to (or can afford to) loose. That is your responsibility - not your banks.

If I had done the same type of investment, I would have to accept the loss and move on. So should you.

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This is it for now - I will keep sharing my opinion on this stupidity.