By Andrew Wong      17th August, 2004

Guaranteed & Best Yield Investment Programme” - Beware

A Query from a Friend

I was asked to comment on an advertisement titled “Guaranteed & Best Yield Investment Programme”, with a more specific question from the enquirer whether he should invest in such programme, knowing that I do investment research work also.

Briefly the scheme works this way

  • Invest min. RM 10,000, you get return of 2% per month for 6 month. Renewable.
  • You also get 70% of Gold Jewellery, certificate issued by a bank, as collateral.
  • If every thing goes well at the end of 6 months, you get back your RM 10,000 and RM 1200 which was paid monthly at 2% to your account, upon return of the collateral

How does the operator take leverage of bank facilities to “inflate” the money?

  • They take your RM 10,000 to purchase Gold, and pawn it to bank for RM 6000
  • They use the RM 6000 to purchase more Gold, and pawn it to bank for another RM 3600
  • They use the RM 3600 to purchase more Gold, and pawn it to bank for another RM 2160, and so on and so forth till they squeeze all the pawn money from bank with total of RM 23,056 gold purchase from your RM 10,000.

How does the operator makes money to give your “guaranteed” return of 24% per annum?

They use the “inflated” money to purchase bulk Gold Jewellery, 2nd Hand Jewellery trading, Gold shop operations, Gold Jewellery and Bullion Trading, Currency Arbitrage, Gramme Versus Ounce Arbitrage, Dollar Average – Existing Gold Deposits.

They claim that they can earn normally 20% of the inflated money. (RM 23,056 not just RM 10,000). 

What are the investor’s risk?

Assuming it is not a conmen job, the operator has to make sure that his business venture (described above) gives good and consistent return to be able to pay you 24%. (Note: They design the scheme for 6 month renewable arrangement, not 6 years!, too long to feel comfortable for them and for you as investors)

We all know that no business is risk free, and we are curious to explore and do some simple research.

1. Take a look at the 10 year Gold performance

Obviously today Gold peaked after previous peak in 1995, with sign it may go down trend. If the operator buys lots of Gold with your money and if the gold declines in price, they will lose money heavily, and they cannot pay you. Your only get your gold certificate that depreciates in value also.

Maybe the above scenario is not applicable, Gold continues to be bullish, high demand for Gold. Then the operator makes a lot of money and you get your 24% return.

2. It appears that they are also in the jewellery trading. If they operate their business well, they may make good money. This is with the assumptions that the economy is doing well, there is abundant wealth around, people have lots of spare money to buy jewellery. Then you may continue to get 24% return per year.

Will I invest in such a scheme?

My answer is NO, for the following reasons

  • The operator is a Sdn. Bhd. Company. No mention of under strict regulation of Bank Negara or Security Commission.

  • One should not be misled by the involvement of the bank mentioned above. The banks has nothing to do with your investment, it is the operator Sdn. Bhd. Who “guarantee” you. The bank lets the operator use their facilities e.g. pawn arrangement for a fee / interest.

  • The operator is undertaking a business risk, he does not get any guarantee that his business performs well, yet he “guarantee” you with 70% worth of your investment as collateral, which may depreciate in value if the Gold price goes down.

  • More importantly, I am an active researcher and investor myself. I research for best investment and consistent return (with institutions well regulated by Bank Negara / Security Commission), with good research and analysis and right TIMING, the return can be 100-200%, not just 24%.

  • My target is to create wealth significantly, not invest a bit her a bit there, some 24% return, some 50% return, others –80% loss. To do that, I rely on good homework and research and remain focused and concentrated. Once I found such investment product, I can go big, i.e. almost all my saving put into such investment (with closer monitoring to protect my capital). This is the way to make real big money. In the above case, no one in his right frame of mind will put most of his saving into such scheme. If he invests RM 20,000, and even if he can 24%, he still gets peanut, as the investment capital is small.

  • In the above scheme, as investor, I have no clue on how the operator is doing until too late if there is bad news. Since I have no clue, I have no idea when to cut loss even if I can to cut loss. (It is very dangerous if investor has not control on his investment money, whereas in the investment approach I use, I can let go (take profit or cut loss) on any day if my research indicates such decision to make.

  • In my investment approach, I don’t just invest RM 50,000, I can invest RM 5 million if I have that amount of money, because I can have control. My 8% per year modest return on RM 5 million gives RM 400,000, which is much more that 24% on RM 50,000 i.e. RM 12,000 invested in the above scheme. Now which approach can make more money!

    My humble views to share with you all.

    End.

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