Investments That Sound Too Good To Be True

[Gina McLauchlan]

This is one carried over from the old forum

By Cliff D’Arcy (TMFCliff)
March 17, 2003

Recently, I wrote about a doubtful business opportunity in Beware ‘Working From Home’ Scams. What I failed to mention was that my area of West London is being carpeted with leaflets and stickers advertising similar home-working schemes. This suggests that more and more people are being swept up in unrealistic network marketing schemes that rely on sucking in more poor unfortunates as fresh bait to keep the scam going….

So, tell me, what do these sayings have in common (apart from they all refer to fools, not Fools)?

“There’s a sucker born every minute.” P T Barnum
“If you can’t see the fool in the market, it’s you.” Market phrase
“A fool and his money are soon parted.” Proverb

Well, for a start, all three are frequently trotted out in newspaper commentaries describing the victims of the latest investment scam. There seems to be something in human nature that causes certain people to be attracted to “get rich quick” schemes. Call it greed, ignorance or gullibility, some people will always be the “marks” – easy prey for the confidence tricksters.

However, whether it’s promises of vast wealth from Nigerian scammers, dodgy shares or ostrich farming, remember that there will ALWAYS be a catch.

Last Friday, the Department of Trade and Industry presented a court petition to wind up Practical Property Portfolios Limited (PPP) and Napeer Holdings Limited in the public interest. Northumbria Police and the Official Receiver raided PPP’s offices last Thursday, entertainingly just as the Daily Mail’s investigative journalist Tony Hetherington was investigating a complaint about PPP!

The theory was that investors handed over £25,000 to PPP, which it used to buy and refurbish rundown properties in the North-East of England. PPP then finds tenants for the properties, whose state housing benefits are used to pay the rental income to landlords.

This rent was allegedly guaranteed by an insurance policy, which meant that prospective landlords were promised a yield of 15% a year. The promise of extra-high returns is one of the nasty smells usually given off by get rich quick schemes. PPP advertised widely in prestigious titles, including the Investors Chronicle, The Sunday Times and Sunday Telegraph. However, at the Fool, there was some worrying feedback posted on our Property Investing – Practical discussion board.

Anyway, it remains to be seen whether outright fraud or mismanagement will be proved at PPP but however you look at it, existing investors are likely to lose out and could end up losing all their “investment”.

So, if you want to get rich, how about getting rich slowly? Warren Buffett is possibly the world’s greatest investor. Ol’ Warren is worth over $30 billion dollars, none of which came from pyramid schemes or ostrich farming! In fact, Warren’s wealth has come from investing in the stock market over the long term by buying big stakes in great companies.

More like this at: http://www.fool.co.uk/news/comment/2003/c031203d.htm?ref=emaillunchhtml

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