The presidential election is still more than a year-and-a-half away, but it’s not too early for a fresh dose of controversy. The latest wrinkle involves money. (Shocking, isn’t it?)
It seems that a certain junior senator from Illinois made some questionable investments of as much as $100,000 in two small companies that just happened to be owned by two of his political contributors. Actually, Senator Barak Obama didn’t personally deploy the money; his advisor did via a so-called blind trust.
The concept of a blind trust is that it’s designed insulates the investor, in this case a United States Senator, from any repercussions, political or otherwise, that might arise from the investment. Oh, well–so long to that myth. Obama is being questioned, ever so subtly, in the press on the age-old issues of, What did he know and When did he know it?

Clearly, the fact that a Senator invested in small, high-risk companies that are owned by two of his more prominent financial contributors raises some eyebrows. Nonetheless, unless we hear otherwise, we’ll take the Senator at his word and accept the official line that he didn’t have a clue as to what he owned, courtesy of the blind trust. “At no point did I know what stocks were held,” Obama said via The Chicago Tribune. “And at no point did I direct how those stocks were invested.”
While the rest of the world dissects the political implications, we’re content to wonder what his financial advisor was thinking. As investment counsel goes, putting Obama in two stocks–
AVI BioPharma (Nasdaq: AVII) and SkyTerra Communications (NYSE: SKY)–owned by political contributors, blind trust or not, surely ranks as one of more ill-advised ideas in recent financial history. Perhaps someone should have told the advisor that Obama has been an ambitious politician who’s been known to receive a fair bit of media attention. In short, err on the side of caution when it comes to investments. But, hey, that’s just us.
Ok, how did it happen? The ill-fated investments started after Obama signed a $1.9 million book deal in December 2004. According to the Chicago Tribune story, most of the money went to buying a house. In trying to figure out what to do with the rest of the cash, Obama asked George Haywood, a political supporter, for advice.
To speed the story along, we’ll quote the Tribune article:

“This was very casual,” Obama said, recalling that he said, “‘George, I’ve got $100,000 that I’m interested in doing more [with] than the standard mutual fund. What recommendations or suggestions do you have?’ He said, ‘Why don’t you go with this stockbroker who has worked well with me in the past?'”
Obama said he met with the stockbroker, whom he declined to identify.
“What I said was, ‘George told me that you could invest in slightly higher-risk stock choices,’ and that I didn’t want to know anything about it,” Obama said. “He provided us with the standard form where they ask you, ‘What’s your risk tolerance?’ and `How long do you expect to hold these stocks?’ etc. That was the extent of the conversations.”
Obama said he did not give the broker specific directions about where to put the money.

Long story short, Obama invested, via a UBS account, in the two companies in question. Assuming that the Senator had $1 million left over after his house purchase, the two stocks represent 10% of the portfolio. Some might say that’s fine. Of course, as it turns out, Obama lost money on the stock investments. (Another shocking disclosure.)
From our perch, it seems questionable, at best, to put such a large portion of a portfolio in such highly speculative companies. Even if the client asked for stocks, a prudent advisor might suggest otherwise. But even if you go with stocks, why those two? We’re not talking General Electric here. In any case, one might suggest ETFs, which now come in a rainbow of flavors to satisfy both high-risk and risk-averse investors.
The bottom line: with all the stocks in the world, was it reasonable to put that money into two small, speculative companies–companies that just happen to have massive political risk for the client?
Clearly, blind trusts aren’t all they’re cracked up to be. Meanwhile, once again we’ve learned that choosing a financial advisor requires more than a few casual recommendations from friends.
It’s no small irony that an up-and-coming politician who may become President got bum financial counsel. Alas, that’s not exactly atypical in these United States.