Scams pretending to be gold investment
Around 2014 - 2015, numerous schemes were pretending to be gold investments that promise ‘monthly dividends’. A big question is how the organizer could generate the return despite the world gold price not moving drastically. The guaranteed return of about 70 to 100 per cent per year indeed sounded too good to be true.
To be honest, when we come across an investment that promises such outstanding claims, it is a red flag. According to Tuan Azizi Ali, one of the financial experts in Malaysia, the best investment return per year is about 15%. Any investment program or scheme that promises such unrealistic claims is to dig deeper into and do our due diligence. If the plan is valid, we can invest our country's reserve assets and enjoy a 70% return per year, am I right?
Hence, such programs are not get-rich-quick schemes but rather get-quick-broke schemes. The scammers are the ones getting rich through this operation. If we run a business and obtain a profit of 200%, it is a realistic return. But in investment, the best we could achieve is around 20%. Anything higher is unrealistic and raises so many questions.
On a side note, we all can agree that Warren Buffett is the greatest investor of all time. His investing approach is known as value investing, and he took a very long time to achieve magnificent returns. Along with his team, they have been running Berkshire Hathaway since 1965, and their annual compounded return is about 20% compared to the United States of America’s stock market (S&P 500) return of 10.2%. I am telling this to clarify the scammers' ridiculous claims.
Red flags
Let us be the devil’s advocate for a while. If the claim is valid, do you think the banks, hedge funds, and government agencies would keep quiet and not join this fantastic tool to grow their money? They are indeed in a compelling position to place significant funds, and by the time the retail investors (this is us) queue to join, the quota would run out in an eye-blink.
Hence, if the significant hedge funds are not into these so-called ‘wonderful’ plans, that is a sign that, most likely, the scheme is nothing but a scam.
The genius organizer being kind-hearted, maybe?
Secondly, these organizers typically ride on either religion or a particular race and claim that they are running this program to help their ‘people’. They have cracked the ‘code’ to wealth, and they are now looking forward to serving their community.
Again, let us think for a moment from their point of view. If they are to guarantee a range of 70% to 100% return yearly, what would their profit margin be? They would have to earn at least double the return, such as 200%, to cover all the costs in promoting, operations, etc. In totality, a return of 300% has to be achieved to deliver the guaranteed return, am I right? If that is true, they must be a different level of genius than the gold companies that have been in business for many years.
If their business model can generate such profits, why are other gold companies like Poh Kong, Habib Jewels, Joyalukkas and Public Gold not smart enough to implement the same technique?
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Your buddy on gold investing,
Naresh G