The criteria of get-broke-quick schemes (Part 1)
To be honest, the legitimacy of such plans is questionable and requires a lot of data for due diligence checking. However, based on the critical criteria of such programs (which we should also take notice of), it is safe to say that these are scams. Let’s take a look at the criteria:
Unrealistic profits
The promise of 70% to 100% per year is an apparent hoax. As mentioned earlier, even great investors like Warren Buffett could generate 20% per year (only!), following a rigorous process known as value investing. How is it possible for someone (the scammers) who is not known in the field of investment to appear out of nowhere and produce such fantastic results?
If the plan is legitimate, I recommend that we secure a loan of RM 200,000 and invest all-in in this program. The monthly payment would be around RM 1,200, and based on the guaranteed return described; there is a leftover of about RM8,000 to RM 10,000 per month. Isn't this amazing, dear friends? Why do we spend our time at the office for salary when we could generate impressive returns? We can retire the following month and technically be financially free.
The terms keep changing
When such schemes were popular back then (around 2013), it was known as a ‘delay’ scheme. Then the name changed to Estimated Time Arrival (ETA), and new variations were introduced to smokescreen their clients. The underlying principles stayed the same: the clients should hand over their capital (without raising questions), and the management would handle the rest. Gold will not be given to the clients, but each would expect a monthly return. When the terms and conditions keep changing to suit the management’s way of operating their scheme, this is something to note since our money is at stake.
The gold was never the organizer’s concern
We would be surprised to see how they would not focus their attention on the fundamental tool in the program, which is the gold. They are interested in the capital to invest with them, and the gold price can deviate greatly from the world gold market. They can set the gold price very high or very low because no physical gold is involved.
The gold price movement never determined the profit promised as a guaranteed return. Regardless of gold price movement, the payoff is guaranteed, which is exactly what the organizers wanted. From the investor's point of view, as long as the organizer pays the monthly return, everything would be fine.
The source of profit is not clearly defined
When the organizers are questioned on the source of the profit generated, the answers would not be clear. They would give various reasons to deflect the main question.
My Mentor, Tuan Zul, has questioned one of the organizers of such a scheme on the source of profit. The question was, how the profit from this plan was being generated? Instead of answering the question, the organizer ridiculed Tuan Zul because, at that time, he was already well known as an agent from Public Gold. The simple answer given by the organizer was that gold was traded. But that does not explain the 70% to 100% return claimed. Even if we do the calculation thoroughly, the 70% return is not seen.
Hence, when we invest in any form of investment, the typical process is the management would explain to potential clients how they generate profit, their business operation, their strategy, their plans, etc. They will share the prospectus, statistics, financial report, etc. However, these schemes would not be transparent and reveal such crucial information because that would lead to their downfall altogether.
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Your buddy on gold investing,
Naresh G