Wednesday, November 18, 2009
How to spot an investment scam
Mr Tan
This article may be useful to some of your readers from the UK FSA . It also points out the issues with prosecuting overseas fraud and why recovering funds is very difficult. I think a key question for an investment scheme should be who is independently auditing on an annual basis and what are they auditing. http://www.fool.co.uk/news/investing/2009/04/30/transcript-how-to-spot-an-investment-scam.aspx
I was disappointed that he didnt mention land banking but did feel that this quote represents the issues with many investments (stock scams, ponzis, land banking, oil etc) where big returns are offered annually (Minimum 12% return etc). Most people lose of the actual money and just see numbers on a statement or page.
David:
It strikes me that the guys who actually get in early are the ones who are going to make the most amount out of it.
Jonathan:
No, because what actually happens is, normally the con man is good enough to convince the first guys to leave their money in, and that normally happens, they might take out a bit of interest, but essentially they leave their money in as well, and what everybody sees is a paper profit; we see the conmen, they'll give a fancy spreadsheet, they'll open up a laptop, show a graph, and say, "That's what your money was at the beginning" (pointing to the low point of the graph) "and that’s what your money is now" (pointing to the high point of the graph), it looks fantastic.
Steve
This article may be useful to some of your readers from the UK FSA . It also points out the issues with prosecuting overseas fraud and why recovering funds is very difficult. I think a key question for an investment scheme should be who is independently auditing on an annual basis and what are they auditing. http://www.fool.co.uk/news/investing/2009/04/30/transcript-how-to-spot-an-investment-scam.aspx
I was disappointed that he didnt mention land banking but did feel that this quote represents the issues with many investments (stock scams, ponzis, land banking, oil etc) where big returns are offered annually (Minimum 12% return etc). Most people lose of the actual money and just see numbers on a statement or page.
David:
It strikes me that the guys who actually get in early are the ones who are going to make the most amount out of it.
Jonathan:
No, because what actually happens is, normally the con man is good enough to convince the first guys to leave their money in, and that normally happens, they might take out a bit of interest, but essentially they leave their money in as well, and what everybody sees is a paper profit; we see the conmen, they'll give a fancy spreadsheet, they'll open up a laptop, show a graph, and say, "That's what your money was at the beginning" (pointing to the low point of the graph) "and that’s what your money is now" (pointing to the high point of the graph), it looks fantastic.
Steve
Globalization - some bad consequences
The prevailing thinking is that globalization improves the economic wellbeing of the people in the world. Not enough attention is paid to its negative consequences.
One such consequence is the export of the harmful effects of low interest rate to other countries. During the past two decades, Japan had very low interest rates. Speculators borrowed large sums in Japanese currency to speculate in assets in other economies, leading to asset inflation. This has been named as the "carry trade".
Now, the US Dollar has become the currency to borrow for the "carry trade". It has led to the stock and property market bubbles in Asia. Some countries have decided to impose control over the flow of currency to prevent their assets from excessive escalation.
If we want to get back to more stable economic growth, we have to open our eyes and see what is really happening, rather than rely on thinking that globalization, free market and global competition are good. They may be good in some respects but they have negative consequences, which may outweigh the benefits.
Tan Kin Lian
One such consequence is the export of the harmful effects of low interest rate to other countries. During the past two decades, Japan had very low interest rates. Speculators borrowed large sums in Japanese currency to speculate in assets in other economies, leading to asset inflation. This has been named as the "carry trade".
Now, the US Dollar has become the currency to borrow for the "carry trade". It has led to the stock and property market bubbles in Asia. Some countries have decided to impose control over the flow of currency to prevent their assets from excessive escalation.
If we want to get back to more stable economic growth, we have to open our eyes and see what is really happening, rather than rely on thinking that globalization, free market and global competition are good. They may be good in some respects but they have negative consequences, which may outweigh the benefits.
Tan Kin Lian
Public transport in London and Paris
Read my observations about the public transport system in London and Paris here.
Wealth manager
A wealth manager is a person working for a bank who helps the high net worth people to manage their wealth. Usually the client needs to have assets of more than a certain sum, e.g. $250,000.
The wealth manager tells the client that they will help the client to earn a good return on the wealth and will tell some stories about how this can happen. But there is no guarantee.
In some cases, the wealth manager can help the client to make some money but in other cases, the wealth manager loses money for the client. On average, the loses outweigh the gains.
The wealth manager is usually involved in advising on short term speculations on the currency or stock markets. These speculations are at best a zero sum game. The gains made by some come from the losses made by the other speculators.
However, the wealth managers and the banks earn a large fee and commission from handling these transactions. So, in the long run, the clients tend to lose out. For each client that makes money, there is likely to be another client that loses a larger sum, due to the fees.
The experience of many clients who entrusted their wealth to be managed by the wealth managers had been disappointing during the current downturn of the market. However, during good times, they have not been great either.
The lesson: invest for the long term. Avoid short term speculations. The wealth managers cannot help you to spot winning trends. If they can, they would be wealthy on their own.
Tan Kin Lian
The wealth manager tells the client that they will help the client to earn a good return on the wealth and will tell some stories about how this can happen. But there is no guarantee.
In some cases, the wealth manager can help the client to make some money but in other cases, the wealth manager loses money for the client. On average, the loses outweigh the gains.
The wealth manager is usually involved in advising on short term speculations on the currency or stock markets. These speculations are at best a zero sum game. The gains made by some come from the losses made by the other speculators.
However, the wealth managers and the banks earn a large fee and commission from handling these transactions. So, in the long run, the clients tend to lose out. For each client that makes money, there is likely to be another client that loses a larger sum, due to the fees.
The experience of many clients who entrusted their wealth to be managed by the wealth managers had been disappointing during the current downturn of the market. However, during good times, they have not been great either.
The lesson: invest for the long term. Avoid short term speculations. The wealth managers cannot help you to spot winning trends. If they can, they would be wealthy on their own.
Tan Kin Lian
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