Detecting Ponzi Schemes

It’s not easy to protect against Ponzi frauds. Despite what the media tells you, after they are revealed. The SEC often fails to discover them in time.

But there are basics you can follow to reduce odds of falling into traps that entice scams.

A basic way to avoid investment frauds: Stick to plain vanilla investing vehicles from low-cost, investment funds. They are the ones with the lowest-cost management fees, who have been in business for years.

Avoid those who appear to pay off far better than the plain vanilla, low-cost investment funds; hotshots who get publicity from ignorant or complicit “friends” or from media public relations.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Silkscreen Prints Aren’t Truly Original

Sometimes referred to as screen printed or silkscreen prints, these works of art have gotten lots of attention since their use by famous artists.

I have paid attention to the question of originality as this is a factor in determining value. After all, when collecting, you must ask yourself what is true art?

One of the several cogent factors has to do with the way prints are created by the artist.

Each copy of a print made in multi-copies can be original only if done according to established standards.

I have always felt, along with experts on the subject, that the silk screen process did not produce a genuine original because the artist had no complete control over the finished work, as is the case with other print processes.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Special Investment Goals

Consider your personal investment goals when investing, not media suggestions.

General media advice can be totally misleading because they invariably disregard individual circumstances. Namely. the investor’s age and ability to take risks.

You can afford to take losses in your youth when you have time to recoup any errors that you cannot afford, when you are older or retired.

Investors must also consider risk by taking into account their knowledge of the securities markets and other distinctive personal situations; in addition to age; such as number of dependents, financial status and investing-comfort.

Therefore, much media advice and commentary is universally misused by ambitious gurus we encounter. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

A Social Security Ponzi Deal?

Everyone by now is familiar with Ponzi schemes. The loose definition describes a scam whereby someone takes funds from an investor and skips. But there are variations and degrees of scam sophistication.

Generally, a so-called money manager takes funds from investors and after a while decides to use at least some of the funds for himself. He pays off original investors with funds received from new investors.When everyone wants their money back at once, and there isn’t any to give them, the frauds are uncovered.

But there are many schemes which, unfortunately, escape notoriety. They are Ponzi schemes, but are never labeled as such. Take Social Security as the perfect example

It started off as a so-called insurance program, but never was comparable to what you get from a private company. There are no locked-up reserves. Active workers were taxed so that they could get future retirement benefits from taxes placed on other, active. workers.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

How SEC Wastes Your Money

The SEC says it’s  around to help you avoid securities fraud. And it does so, but only to an extent. Much of what it does is  theater.

That’s why the SEC has had a poor record in discovering massive fraud and Ponzi schemes, uncovering them usually by chance, and only after they have already been committed and exposed.

But instead of preventing the bulk of transgressions, the SEC does lots of monetary damage. They tend to pick the average, uninformed investor’s pocketbook by causing unnecessary expense of legal fine-tooth-combing, printing and mailing.

And requires such action constantly, perhaps to a far greater extent than is necessary to alert an ordinarily informed investor.

Just one example: I refer to the expense of having banks, mutual funds and corporations send out useless, expensive, legalese financial literature, that the recipients do not read because they cannot understand the terms the SEC has the senders use.

The only ones who can profit are the lawyers. If a dot or letter isn’t properly crossed or is missing, the lawyers will sue the senders of that hard-to- read and comprehend mail. Again, at the expense of the poor mail recipients who never benefit from the impractical information anyway.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Your Asset Allocations

What do you do when attempting to maintain stock/bond asset allocation relationships?

The early 2009 bear-market in stocks had also been accompanied by a massive sell-off in bonds. The domestic market’s experience had been paralleled overseas as well. That was unusual and not supposed to happen. When stocks in the past were weak, bond prices had generally shown strength.

Therefore asset allocation did not help in that bear market. Using different asset classes to get a high return at a lower risk was unattainable.

Alternatives to conventional stock/bond formulas to balance market fluctuations are not sure-fire answers. But advisers love to recommend a variety with the aid of 20/20 hindsight.

Collectibles are not the answer either, in protecting against market downturns. because of a lack of ready marketability and poor resale margins.

Investors have been using combinations of gold, silver and other precious metal holdings. Still others, questionable short-term commodity trading antics. We see how erratic they are.

Over the long run, diversification among different asset classes has produced much higher returns, along with lower risk.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Timing the Stock Market

The financial media has a habit of commenting on timing the securities markets. It cannot stop for a good reason. Securities-timing articles fill space in blogs, books and publications, over the air, and the internet.

Yet, independent research constantly shows that market timing never works consistently. Mutual fund management companies know that in-and-out investors never do as well as their buy-and-hold, long-term statistics show.

Reading a financial article telling how a rally trend in one security class may be finished, and it may be time to get into another type, should be a danger signal, not a buy opportunity. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)