Financial planners often use the football league as metaphor for investment performance – the six top teams are fairly predictable each year and a sense that success breeds success. Relating this to the top performing funds is stretching things, though I acknowledge that sometimes this does appear to be the case. Invariably funds do not consistently perform at the highest level, with very few exceptions. There are some analogies that can be helpful, though not necessarily reliable – for example the duration of the manager, which for Fund Managers can be relatively short-term, but perhaps not quite as brief and sanguine as the very short-term tenures of the majority of football managers. The size of the football club would often suggest strength of resources (as it might for investment companies) but recent evidence would suggest (as any good business person knows) that governance and how an organisation is operated are the vital ingredients.

Take Glasgow Rangers typically either 1st or 2nd in the comparatively small pond of the Scottish Premier League. It would appear that this club (company) had forgotten (like many others seem to) how to run a business. Expenses cannot exceed income for very long. Ambition and desire can play havoc with reality. The use of tax avoiding schemes to pay staff were always questionable and certainly complex. The most recent takeover of Rangers by Mr Whyte used funds provided in advance of ticket revenues… which has a similar feel to it as using the future payments on mortgages to form a capital sum (which effectively was the mechanism that caused the credit crisis). What has this to do with investors? well nothing, unless you have invested in a particular Enterprise Investment Scheme (which is a higher risk form of investment) and run by Octopus, who amongst various holdings, have holdings in Ticketus. The money provided was essentially “working capital” that enabled Mr Whyte (having put up personal guarantees) to takeover Glasgow Rangers. Effectively swapping future ticket revenue for a lump of cash now. This is also similar to the demsie of Enron who operated on the unchallenged assumptions about the future. The implications of the arrangement and the collapse of Glasgow Rangers are being explored by both the administrators and Octopus. EIS investors know that an EIS investment is high risk and there is always a chance that they could loose all of their money, a pertinent question though, is what is the difference between business risk and carelessness? The two are obviously quite distinct.

So as fans of Rangers come to terms with the harsh reality that football is a business (however hard many try to present this reality as “inaccurate”) some investors may need to come to terms with “looking under the bonnet”. Investments can be incredibly complex, with all sorts of attractive promises, they should be designed to make money, but remember that the investor is only one party that seeks to do this, so too does the Product Provider and the businesses that are held within the portfolio. Certainly everyone makes mistakes, but the stockmarket is no place to learn life lessons, unless you really do have money to burn. Financial planning when done well involves considering investments carefully, looking under the bonnet and exposing the possibility of nasty surprises and coming to terms with the reality that there is risk in everything, but minimising these to a sensible level. Importantly reviewing and challenging assumptions in the light of real experience is also a vital part of the “work in progress” that a financial plan will include.

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