AUTHOR: JACOB MURAD

When my family moved into a new house, we were considering different home security options. As is often the case today, there were many options to choose from: security cameras, automatic locks, window bars and everything in between at varying costs. It is impossible to know which, if any, of these solutions were useful in protecting the house.  The main problem is that if a burglar truly wanted to break into the home, he or she will be able to break in regardless of which security system we paid for. At the time, we chose to keep our costs at a minimum because we felt that our ‘real’ security came in the form of the location we chose to purchase our new home: a well-lit street on a low crime, family-oriented neighbourhood. 

Accordingly, when we consider the concept of security in our investments, we tend to focus on all the things that can go wrong, regardless of their probability. We will pay our lawyers and advisors substantial costs to protect us from events that are unknowable and cannot be accurately predicted or protected against. When it comes to investment security, sole deference to expert advice is not a substitute for your own decision-making and analysis of personal risks.

As a lawyer, I am often asked by many people to review their contracts and to ensure the people are “protected”. Since law school, lawyers are instructed that when drafting legal documents, they should think about the many different situations that can occur and draft documents to protect clients accordingly. So, they research case law and relevant statutes, develop precedents and charge handsome fees – all based on the widespread belief that when contracts are drafted with the correct clauses, clients will be provided with sufficient security and protection required to feel secure in their investment decisions. 

However, even if the negative event that occurs is exactly as imagined in legal documents, there is always the possibility that new facts, a new law, or a new judge, may act against you. The advisors that you hired to create the security that you required in your documents are often not the same as those who will be fighting on your behalf should anything go wrong. When this happens solicitors and advisors are traded in for litigators. At that point, the initial advice you received when preparing for the worst may be largely irrelevant. 

There is no amount of paper that will afford you the protection you are looking for when making an investment. While it is helpful as ancillary protection (like the extra lock on your front door), it should not be solely relied upon in making investment decisions. Instead, perform your own risk analysis, research the decision and align the quality of your investment thesis with your personal goals. In this way, you can move forward without a false sense of security.