Is there a place for Blue Chips?

A question I have been pondering is whether schemes like what Blue Chip offered investors have a place in the market.

No doubt many of you will say no way. They are just big rip off schemes where the promoters clip the ticket the whole way through.

However, I suspect there is a place for them, as long as they are well-run. But there’s the rub. How do you tell if it is well run? And what are the rules around these things?

On the latter it would seem there are very few rules; certainly less than around other sorts of investments offered to the public. That in itself is a concern and something the government should be looking at in terms of its current reform of the financial adviser market.

With regards to the former question the answer isn’t particularly clear right now, other than to say the Blue Chip clearly wasn’t well run. I would be interested in your thoughts on this. (Email me here).

Stepping back a little it appears that there are some similarities between Blue Chip and finance companies which have failed.

One of the issues with finance companies is that in many cases businesses relied on new money coming in to help fund investments when they matured. When the inflow dries up a cashflow issue develops.

It seems with Blue Chip there may have been a similar situation.

Secondly we have seen “contagion” in the finance company sector where bad news with one company impacts on investor confidence in the sector and other companies. Blue Chip maybe to this sector what Bridgecorp was to finance companies?