- Joined
- Sep 14, 2007
- Messages
- 617
From my latest newsletter:
There have been a number of investment scams in the headlines lately. We are all familiar with Conrad Black and Bernie Madoff. These are big time guys that went down in a big way taking with them a lot of investors. You may also be aware of Concrete Equities and some other investment syndications that are in some serious financial trouble. I am also aware of individuals at a much smaller level that have made some serious promises that they more than likely won`t be delivering on anytime soon. Size really doesn`t matter.
These are unfortunate circumstances and a lot of people are going to lose a lot of money but the really sad part is that it was avoidable. What can we learn from their mistakes? How can we leverage those painful investments?
1. This is a very old school mentality but after last year`s stock market collapse I decided that I wouldn`t invest a dime unless I could shake the person`s hand that I was investing in. This goes against most stock market investments but I am very OK with this. When I write a cheque I want to know the person (not company) I am investing in. I want to know that I can walk into their office at anytime and say "Hi, how is my money doing?" I don`t want the marketing speak or fancy reports from the accountant. I will want those before I write the cheque but not before I get to know who I am investing in. I want to look them in the eye and get the real picture. Invaluable.
2. Has the person you are investing with (notice I didn`t say company) done this before. Have they got a proven track record or have they just read the book. When I was just starting my Real Estate Investment career this was, as it should have been, a significant hurdle for me. The investors that took a leap of faith with me then are very dear to me and not a day goes by that I don`t thank them for trusting in me but this should not be the norm. If the person you are investing in doesn`t have a track record keep a very close eye on your investment. Make sure you are getting regular reports and go have a look at whatever it is that you have invested in. Strangely, even though I have encouraged it, not a single one of my investors, including my wife, has seen their property. If it were me I would be taking a quick drive.
3. Are they heavily invested in the product as well? I want to know that they are eating what they are selling me! This means that if they are doing well than I am doing well. If they don`t have any interest in making your investment perform do you really think that it is going to perform! Your partner should be as heavily invest as you are. This probably isn`t going to be in the form of cash but your interests should be aligned.
4. Are they taking large, upfront fees for giving you the privilege of investing with them? This should be a solid warning sign. This means that they are more of a transaction engineer than an investor. If they don`t have any incentive on the back end you should be asking some hard questions. Now I don`t have a problem with people making money....we all have to do it. But what I do have a problem with is lack of continuing incentive (see point number three)
5. Resale. When assets are brought into an investment are they marked up first? This is very similar to the last point but much more behind the scenes and something a lot of Real Estate companies are guilty of. They buy an asset personally at a given price. It may or may not be a good deal even at that time and then they sell it to their partners with a mark-up. They take a hefty profit and the investors are none the wiser generally. When you are shaking the persons hand ask them about this practice and see what their reaction is. If they are transparent and open it is probably a green light. If they get defensive and try to justify their methods you might want to think twice.
I hope that this has been helpful and helps you with your next investment!
There have been a number of investment scams in the headlines lately. We are all familiar with Conrad Black and Bernie Madoff. These are big time guys that went down in a big way taking with them a lot of investors. You may also be aware of Concrete Equities and some other investment syndications that are in some serious financial trouble. I am also aware of individuals at a much smaller level that have made some serious promises that they more than likely won`t be delivering on anytime soon. Size really doesn`t matter.
These are unfortunate circumstances and a lot of people are going to lose a lot of money but the really sad part is that it was avoidable. What can we learn from their mistakes? How can we leverage those painful investments?
1. This is a very old school mentality but after last year`s stock market collapse I decided that I wouldn`t invest a dime unless I could shake the person`s hand that I was investing in. This goes against most stock market investments but I am very OK with this. When I write a cheque I want to know the person (not company) I am investing in. I want to know that I can walk into their office at anytime and say "Hi, how is my money doing?" I don`t want the marketing speak or fancy reports from the accountant. I will want those before I write the cheque but not before I get to know who I am investing in. I want to look them in the eye and get the real picture. Invaluable.
2. Has the person you are investing with (notice I didn`t say company) done this before. Have they got a proven track record or have they just read the book. When I was just starting my Real Estate Investment career this was, as it should have been, a significant hurdle for me. The investors that took a leap of faith with me then are very dear to me and not a day goes by that I don`t thank them for trusting in me but this should not be the norm. If the person you are investing in doesn`t have a track record keep a very close eye on your investment. Make sure you are getting regular reports and go have a look at whatever it is that you have invested in. Strangely, even though I have encouraged it, not a single one of my investors, including my wife, has seen their property. If it were me I would be taking a quick drive.
3. Are they heavily invested in the product as well? I want to know that they are eating what they are selling me! This means that if they are doing well than I am doing well. If they don`t have any interest in making your investment perform do you really think that it is going to perform! Your partner should be as heavily invest as you are. This probably isn`t going to be in the form of cash but your interests should be aligned.
4. Are they taking large, upfront fees for giving you the privilege of investing with them? This should be a solid warning sign. This means that they are more of a transaction engineer than an investor. If they don`t have any incentive on the back end you should be asking some hard questions. Now I don`t have a problem with people making money....we all have to do it. But what I do have a problem with is lack of continuing incentive (see point number three)
5. Resale. When assets are brought into an investment are they marked up first? This is very similar to the last point but much more behind the scenes and something a lot of Real Estate companies are guilty of. They buy an asset personally at a given price. It may or may not be a good deal even at that time and then they sell it to their partners with a mark-up. They take a hefty profit and the investors are none the wiser generally. When you are shaking the persons hand ask them about this practice and see what their reaction is. If they are transparent and open it is probably a green light. If they get defensive and try to justify their methods you might want to think twice.
I hope that this has been helpful and helps you with your next investment!
