The Pit - IMI Trust

Flying back from Sydney on Tuesday night I flicked through the Virgin inflight magazine. An advertisement caught my eye for an investment strategy.   

The advert proudly displayed that if I purchased a Crude Oil bull warrant at US$66.00, then every US$1 increase equated to over AUD$31,000 profit on each movement. Wow-wa-wee-wa! As the global hype machine Borat would say. 

The fine print said this.  You have to initatially invest $57,500.  Well, that’s disappointing because the hook of the headline was about a $1 movement on a $66 warrant.  Better yet, the text continues that if, and it’s a big IF, the price of oil shoots to $72 from $66, you make $200,000.  Sounds great. Triple digit percentage returns in a matter of days. 

Better still, that $57,000 controls over $2m of assets in the commodity.  Did anyone use the words ’Hideously Leveraged’.  Better again, the advertisement mentions that this scenario is hypothetical.  Cool.  So hypothetically, what would happen if oil went from $66 to $57 as it stands today?

Unsurprisingly there is no mention of this.

In advertising, use real trading scenarios. These frame the investment for the client.  Then present different scenarios to demonstrate typical gains and losses.  An advantageous strategy to use would be to highlight potential hedging positions.  This shows that you have the nous to protect investments.  As this is a lot of information to impart most companies use historical data in their advertising as a safe method of demonstrating the ‘potential’ of an investment. 

All hype, no risk.  When you see that you should be suspicious.  Especially in unfamiliar investments. In your marketing, are you safe, balanced and present the facts?  And have you seen examples of ‘glossy’ presentation?