This story had a sad ending

by Manshu on May 9, 2011

in Opinion

About a year ago I had written about how my grandpa had handed some money to a “business associate” to perform trades on his behalf, and how I was certain that he will lose money.

That was a story about conflict of interest and let me paste a small snippet from that post to give you some background.

He (my grandpa) has made more money in stocks than most people I know, and knows a lot about the markets and investing. His eyesight is really weak these days, and that makes tracking price quotes or just general reading quite difficult. He stopped following the stock market altogether for the past couple of years, but I met him yesterday and he said he has started a new thing.

He has given a small sum to a “business associate” of a big broker, and that guy trades on his behalf. At the end of every day, he sends a report of the money made or lost during the day and the list of trades.

I showed interest in this, and didn’t say anything because I know it keeps him busy and interested, and that is a small price to pay for the loss this business associate will eventually incur on my grandpa’s behalf.

Make no mistake about it, there will be a loss, and it will probably be all of his capital. I say this because of the huge conflict of interest coupled with the frequency of trades. There are so many trades that it is quite apparent that this guy is doing it just for the commissions.

This scene played out much worse than expected and my grandpa did lose money, but it looks like he didn’t put a lot of money with this guy to begin with so he didn’t lose a lot.

However, his friend was not so lucky. He must be in his 70’s and it looks like he gave a major chunk of his money to this so called business associate.

The guy messed up badly and made losses that ran into lacs, and I think it ate into nearly everything that was invested with him.

It was either fraud, or gross incompetence – I don’t think they were able to establish which.

His clients threatened legal action, and the main broker in turn made some losses good – primarily by holding back on the salary and incentives of the business associate.

It looked like the guy had taken a few loans and traded on his own behalf as well, and he lost money there too. So, he was really in a spot, and since he was from out of town he just vanished one day.

After that everyone moved on with their lives, but a few months later – my grandfather’s friend passed away. I don’t know if this incident had anything to do with his death or not, and to be honest when I first heard of his untimely death – this incident didn’t even come to my mind. It’s only recently that I stumbled on my old post, and was reminded of the events.

A grim reminder of how some money mistakes can prove a lot more costly than just losing money.

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