And now, some words about Get-Rich-Quick schemes

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One chap has written to me saying that he has lost respect for me for writing negatively about Get-Rich-Quick schemes (GRQ) operating on the Internet. I suppose he wanted to hear me say that the Internet investments are the best in the world.

But how can I say such a thing when all the signs are showing that most of them are Ponzi schemes? How can I say such a thing when all the bells are ringing and red flags are showing that they are Ponzi schemes? So I cannot and will not say it because I know GRQ/Ponzi schemes will not do anyone any good.

In many ways, the GRQ schemes operating on the Internet are pretty much like the Superman movies. Everyone – except the actors in the movie – knows that Clark Kent is Superman. The signs are obvious: Kent and Superman are the same height, same size and heck, they even look the same. What's more, every time Kent is missing, Superman shows up. And every time Superman is around, Kent is not there. So the signs are obvious to everyone, except to the actors in the movie. They do not, cannot and will not see the signs.

Similarly, the signs showing that the GRQ schemes operating on the Internet (and off it as well) are scams are obvious to everyone, except to the voluntary victims. Just as the actors are blind to the fact that Clark Kent is Superman, the voluntary victims are blind to the fact that the GRQ schemes are scams. They do not, cannot and will not see the signs.

Let's look at just a few points.

The typical GRQ operators promise to pay 20 percent return a month. That's the equivalent of 240 percent a year. To put it in perspective, that is better than practically all other investments in the history of the world! It would make the GRQ operators better fund managers than Warren Buffett, George Soros, Peter Lynch and John Templeton put together. Check out the performances of these world class fund managers in the table below:

Fund Manager

Fund

Return per annum (%)

Period (years)

John Templeton

Templeton Growth Fund

14

32

Warren Buffett

Berkshire Hathaway

22

40

Peter Lynch

Fidelity Magellan

29

13

George Soros

Quantum Fund

34

25

Imagine that? Even these legendary managers could only (!) give a return of 14 to 34 percent per year. And they are the best in the world!

Now does it make sense to you? Does it make sense that people who probably never studied investments at all are the world's best investment managers? Does it make sense that people who no one has ever heard of suddenly becoming the world's greatest investor ever? Does it makes sense that they can give returns of 240 percent (or higher) in a year, beating even these legends?

Of course not. There is no way that the GRQ operators are the world's best fund managers. (They could win awards as the world's greatest con artist though!)  

Further, the GRQ operators promise to pay the return the very next month after we've made our investment. Wow and double wow! All other investments in the world require some time before the fruits of the investments can be seen, which is why the returns are only paid out after six months, one year or even later. These include the most profitable investments.

If it is true that the ‘managers' of the GRQ schemes invest our money in forex, hedge funds, mutual funds, etc., etc., they must be super magicians because they can pay us in one month even though they themselves get the money once or twice a year! So where is the money coming from? Could the answer be “from the latest ‘investor' into the scheme?”

Bingo!

Hmm, more clues as to where this is getting to.

“You have to give it a chance”

A quick retort from the ‘investors' of such scheme is “You should give it a chance. How do you know if it is good or bad until you try it?”

The retorts are fine by themselves. I have no arguments with the retorts and would agree with them most of the time.

But let's look at the end results here. Some things you do not have to experience yourself to know that it can be very painful. You do not have to jump down ten feet to know that you can break both legs. You do not have to be bitten by a snake to know that it can be very painful (to say the least).

Why should you give a snake a chance to bite you, especially if you have seen it biting your relatives? Why should you dump your money in GRQ/Ponzi schemes when you have seen your relatives losing hundreds of thousands?  

Why it works initially

“I agree with what you are saying here, Azizi,” some people will be quick to point out. “But the reality is that the early investors are getting their money back on a regular basis. As a matter of fact, they have not missed receiving the dividends at all. Every month, there's money in their bank accounts. What have you got to say about it?”

Of course they got their money. They got their money because that's how the operators attract more people into the scheme. If the early investors (and I use the term loosely here) lost money, the scheme will come to a grounding halt very quickly. And that is a big no-no to the whole operation. We need to remember that the operators of the scheme are no fools.

Let me now explain how and why the scheme will work in the initial days.

To attract investors, the operators must have a valid business model. If the model is suspect, then few people would want to risk their money outright. But when a valid business model is presented, it is much easier to attract investors. They have to if they want to attract investors into the scheme!

These valid profit opportunity and business model can be running a business (perhaps supplying huge contracts to some governments somewhere) or some exotic investments which can be trading in currencies (or the more glamorous name of forex), futures or commodities or using the power of the Internet. Of course, some schemes will not even bother to have products. Instead, they will come straight out and ask you to send them RM20, forward the mail to twenty other people who will then do likewise. After a hundred days, you'll earn over RM100,000!

But whatever the scheme, the operators will make sure that the early investors will get their money as promised in the beginning days. Not a single payment will be late or missed. Everything is exactly as promised.

Precisely because the early investors are getting their money back is the reason why the scheme works a treat in the early days. They have earned the trust of the early investors. These early investors will then tell others, usually their friends, colleagues or family members, about the scheme. They do this for two reasons: (1) to share their good fortune with their loved ones and more importantly, (2) because they are getting a commission from each new investor that they bring in…

For a more comprehensive explanation, please read my book entitled “Scambuster: How to Protect Yourself from Scams, Get-rich-quick Schemes and Other Unworldly Investments”. This 152 pages book covers Internet investments, how to detect a GRQ scheme and steps to protect yourself and your loved ones. Ordering details are on the website: www.millionairesplanet.com/books.htm.

 

Copyright © Azizi Ali 2006

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