Speaking to InvestorDaily, Investors Mutual Ltd (IML) senior portfolio manager and head of investment research Hugh Giddy said that when a company is in trouble the shareholders should lose.
“But it often hasn’t happened,” Mr Giddy said. “The shareholders haven’t been wiped out when really they should have been wiped out completely.
“If your firm is bust, it's bust. Even if you’re a bond holder, you should be wiped out,” he said, citing as an example the Irish government’s bailout of bank bond holders during the recession.
“When you lend money you should be prepared to lose it,” Mr Giddy said.
“When you invest in shares, it must be a contract where risk is two sided.
“Governments have set this dangerous precedent where people aren’t being forced to accept the consequences of speculation and risk taking.”
Mr Giddy’s comments come after the US stock market reported a 27 per cent rise in 2013, its biggest since 1995.
“I just scratch my head at that because if you look at US company earnings, they’ve hardly moved,” he said.
“Most of it has been valuation expansion.”
People think that the market will never fall because US Federal Reserve chairman Ben Bernanke and his successor Janet Yellen will always be there to support things, Mr Giddy said.
“To me it is abhorrent and disgusting the greed that has been shown in the world in the last decade, where you have these people who made huge bonuses and did really well in the good times, but when the bad times came they really didn’t suffer,” he said.
“A lot of the pick-up in the US economy hasn’t been main street; it has been in the finance sector, as the government has supported banking and handed out loans.
“That has been the growth segment of the economy.”
