Dick Smith a lesson in risk

The fallout over technology retailer Dick Smith’s receivership just two years after being listed is a reminder to clients that not everything is a sure bet, advisers say.

Tuesday, January 12th 2016, 6:00AM

by Susan Edmunds

Potential buyers have until the end of this month to register their interest in the firm.

The company, which throughout Australia and New Zealand, was put into receivership when banks withdrew their backing after a weaker-than-expected end of year.

Private equity company Anchorage Capital bought Dick Smith in 2011 for A$115 million ($122 million), stripped out costs and sold down stock before listing it 2013 for A$520 million.

Its share price dropped from A$2 in August to A35c before trading was stopped.

Adviser Jordi Garcia, of New Zealand Financial Planning, said he told his clients not to have more than 10% to 15% of their portfolios tied up in more speculative investments such as new initial public offerings (IPOs). 

He said the Dick Smith experience was a reminder that an IPO could go bad.

“Some IPOs do really well but there are a large number of speculative offering son the market and you have to hold for three to five years to see any sort of change.”

Another adviser, Robert Oddy, said investors needed to understand that they were taking risks when they made investments. “The objective is to try to get reimbursed for the risk you’re taking. In a lower interest rate environment that is difficult to achieve.”

Adviser Simon Hassan, of Hassan and Associates, said it was sensible to keep investments in things such as IPOs to no more than 5% of a portfolio.

Oddy said it was likely to be a turbulent year on equity markets, which could force some clients to rethink their asset allocations.

“Sudden changes and the huge amounts being talked about after the Chinese problems last week, we’re likely to see more of that. It might act as a bit of a circuit breaker to get people to think carefully about whether they have the ability to remain in invested for five or 10 years.”

He said some people might need to think about having more of their money in term deposits so that they could be assured it would be there when they needed it.

Tags: equities financial advisers

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