On this week’s Goldstein on Gelt podcast, Doug meets John O’ Connor, president and chief investment officer of 3-D Asset Management. Find out what a separately managed account (SMA) is and how it helps investors diversify their portfolios. Learn more about this method of money management on your favorite weekly personal finance show.
Posts Tagged ‘goldstein on gelt’
On this week’s podcast, find out about bonds. How do they work? And how would you know if they are a good investment for you? Show host Douglas Goldstein explains what bonds are, their various parts, and how to calculate their yield. Tune in to this week’s show to learn more.
In the second part of our weekly podcast, the theme of thorium continues. Journalist Richard Martin, who is a contributing editor to Wired magazine and the author of Superfuel, explains the advantages of using thorium and why it is such a safe and effective alternative to commercial nuclear fuels.
On this week’s podcast, Doug meets Kirk Sorensen, the founder of Flibe Energy. Find out what thorium is and why it could become a major source of energy in the future.
One of the main headlines in world financial news this August has been the fate of ZeekRewards.com, an online company that offered investors the chance to get rich quick. Interestingly enough, I heard about ZeekRewards before this company hit the headlines, when one of its salespeople contacted me and asked me to represent them. The very pushy salesman nagged me to set up a meeting, but the more he pushed me, the more uneasy I felt. So I decided to follow my mother’s adage of, “If it sounds too good to be true, it probably is,” and I didn’t meet him.
Reading the headlines, I’m very relieved with my decision. ZeekRewards offered promises of returns such as 1.5% of the investment at the end of each day and shares of 50% of the daily profits. Wouldn’t everyone want that kind of deal? However, this August, the Securities and Exchange Commission (SEC) filed an emergency action in a North Carolina federal court because this investment project was yet another Ponzi scheme.
The owners of ZeekRewards must have realized that many of these potential investors were going to ask questions. So, in a bid to protect themselves they added a clause for new users stating that they were not purchasing stock or any kind of “investment or equity,” and they even labeled the whole thing as an “e-commerce subscription.” The SEC saw through their ruse and said that this was not the case and in fact the company was offering its subscribers false securities. However, the average investor did not have the knowledge to understand what they were getting into, and the abovementioned clause probably sounded fair enough.
As people kept subscribing and playing the company’s game, investing and reinvesting, the company’s cash outflows began to exceed its total revenue, leading to a collapse and many unhappy subscribers who were left with nothing.
This time, there are more than 1 million victims of the scheme, making this the largest such bankruptcy case, with around $600 million at stake.
Interestingly, many observant Jews, both in Israel and America, have fallen prey to this scheme. It’s not the first time that Jews have been hit hard by Ponzi schemes (think Madoff).
This raises the question of why Ponzi schemes such as ZeekRewards are tempting to the religious Jewish community. One possible answer is that many religious Jews have large families and in this economic climate finances may be tight. Offer a person who is trying to find legitimate ways to support his family a way to make some extra money, and it’s tempting to find out more.
Sadly, as stated above, ZeekRewards is not a one-off story. Apart from desperation to make more money, another possible reason people fall for these schemes is that the scammers may have gotten smarter.
However, there are three basic measures that you could follow to protect yourself from falling victim in a financial scheme:
1. Remember my mother’s rule: “If it sounds too good to be true, it probably is.” ZeekRewards offered high gains for pressing a few buttons and looking at some ads. This is the first sign of something suspicious. When something sounds too good to be true, ask yourself, “What’s the catch?”
2. Do your research. One potential investor who decided against investing with ZeekRewards said that when he heard about it, he did his homework. He discovered that the company’s securities offerings were not registered with the SEC as required by U.S. federal law. Recognized authorities monitor investments for a reason; their absence speaks volumes.
3. Don’t feel pressured. If the company/salesman/friend keeps nagging you, saying that the investment opportunity will be gone if you don’t “buy now,” it may be wise to let the opportunity pass.
While there are no guarantees in the world of finance, taking these three steps will provide a basic level of protection against becoming a victim of the next Ponzi scheme that rears its ugly head.
If you are interested in hearing more about the biggest investment fraud in history, watch this TV interview that I did on the subject of Bernie Madoff. Although this was four years ago, the points remain the same. If anything, there are more frauds out there and we need to be more careful than ever. So be wary and tread with caution.
If you buy a property as an investment, there are two ways you can profit – either you sell it for more than you paid, and/or you collect rent. Let’s look at each of these and see why they often don’t work out:
Selling for a profit
If you buy a property for an investment, hoping to sell years down the line at a profit, remember, that it’s not always easy to sell an apartment. Though people talk about the dearth of housing in Israel, there are “For Sale” signs all over, even in Jerusalem. The best way to ensure a quick sale of property is to sell it at a low price, often at a loss. But even if you don’t need the money and can afford to hold onto the property, remember you have the “friction” of buying and selling in the form of taxes, lawyers’ fees, real estate agents, assessors, mortgage costs, and more.
In some parts of Israel, rental income represents 2% of the value of the property. So if you’re looking at a rental apartment to provide cash flow, you haven’t found the best return. Moreover, there’s no guarantee that you’ll have renters for 12 months a year. If you presume that, on average, you’ll only be full 10 or 11 months a year, account for the fact that your income would be around 8% lower than if you were full all year round. And if you can’t rent the property out at all, then your money is tied up in a non-performing asset.
So if you are considering investing in real estate in Israel, the #1 thing that you need to know is that buying physical real estate could be a bad investment. That’s why for real estate investing, I prefer using REITs (real estate investment trusts), which trade on a stock exchange, pay dividends, are easy to buy and sell with low cost, and can be bought in the form of a mutual fund.
There are many reasons to buy property in Israel, not only financial. Some Zionists want to solidify their connection to Israel, or hope to one day retire there. Before you buy real estate (or any investment vehicle), make sure you understand your motivation and the pros and cons.
If you want to know about practical investing in Israel, sign up for my company’s investment newsletter and get a free investment ebook as a gift.
A new fraudster has just turned himself into the police for defrauding investors out of millions of dollars (or shekels, actually, as this guy was in Israel). But the story is the same as when Mr. Ponzi himself was inventing the Ponzi scheme.
Want to blame the government or the regulators? As they say, all that blame and five bucks will get you a cup of coffee. I would not want to blame the victim, but let’s look at some of the facts in the case. In fact, these points are the same in almost all of the fraud cases I have read about in my two decades on Wall Street:
The clients gave money directly to the investment advisor.
The clients did not get statements from a bank or brokerage account.
The clients believed the investment advisor who said he could make totally unrealistic gains … guaranteed!
The clients believed there was little or no risk.
If these clients were children or severely mentally incompetent, I would agree with the argument that we need stronger regulations and better government oversight. But in the most recent case in Israel, and if we look at the biggest scandal ever – Madoff – we see that the clients were often very sophisticated professionals who were very experienced in all aspects of business.
Rather than going into the behavioral finance explanations for why even top-tier investors let greed trump caution, let’s get practical. (If you do want to learn about the psychological aspects of what makes people do the wrong thing, you can listen to my interview with Nobel Prize Laureate Daniel Kahneman on my radio show. You can see that interview on YouTube.)
In this blog post, I want to make only one basic point, and if you finish reading this article with this one take-away, you can feel pretty confident that you won’t get suckered into a fraudulent investment scheme. If it sounds too good to be true, it probably is. This idea came from my mother (also a Wall Street veteran, and author of a book for children about how the stock market works).
If Ponzi scam victims considered this core concept before getting involved, this is what they might have thought: “You’re promising me 1.5% profit every month. What do you think I am? Stupid? Not even Warren Buffet can do that.”
They would have continued to think: “You are guaranteeing my principal? Who do you think you are? A government guaranteeing its bonds? Germany guaranteeing the Greeks? You couldn’t possibly have enough money.”
Finally, they would have considered who custodies the money: “You are saving me the trouble of opening my own bank account and putting my money into your own account? And then you will just print up statements on your own laser printer? Come on, buddy, I wasn’t born yesterday.”
Which investment scammer has you in his sights? Who knows? But one thing is for sure – if you start by asking the most basic questions and not believing the unbelievable, you’re well on your way to protecting yourself. The scammer will just move on to his next victim.