Common Sense Guide to Investment Funds

The Golden Opportunities of Ponzi and Madoff and Many Others to Help You Lose Your Money

1) The manager’s past record of achievement is no guide for the future.  You may know what they did before but that does not indicate what they will do now.  Each company is a new company, each industry is its own industry, each day is a new day and each opportunity and risk is new.

2) Who is the manager?

3) What type of administrative support does the manager have?  Is this person a sole expert?

4) Who administers if the manager is unavailable, ill, injured, etc.?

5) What makes this manager better or more knowledgeable than the others?

6) What return is offered?  Is it better than any other?  Is it more consistent than any other? Are promises made or intoned?  Why?  

7) What information do you have to examine about the fund?  Did you seek out and hire an expert opinion?

8) Did you meet the manager?  Were you comfortable with that manager? 

NOTE:  A good con artist specializes in making you very comfortable.

9) Did they do you a favor by “allowing you into the fund”?  Don’t believe it!

NOTE:  There are no favors in investments.  When the fund is full, it is full.  Wait for the next formal, no favor, opening.  Feeling like you got lucky by being “squeezed in” is not lucky.

NOTE:  Affinity fraud is the exploitation of your friends, relatives, business associates and all others you have a close relation with.  These relations may not be so close later on. 

NOTE:  The future of every opportunity looks rosy.  It is supposed to.

NOTE:  The most important function of a Prospectus is to raise money.  If the Prospectus follows all the rules and does not raise money, it is a failure.

10) Who is the auditor?  This is not a recommendation of specific auditors!  Have you checked out the auditor named by the manager?  Have you checked their record?  Are they actually certified?  Are they actually engaged by the manager?  Do they have other clients?  Do they have the labor force to actually conduct an audit? 

NOTE:  The auditor is required to perform certain tasks to ascertain the validity of the claimed holdings and income.  The auditor has both legal and professional liability to

perform these tasks.  They can be sued or prosecuted if they do not perform to the basic accepted standards.  Ignoring this basic function is like looking away from the traffic when you cross the street hoping that if you don’t see the cars coming they won’t hit you.  The first car may not hit you, but…..

11) Who referred this offer to you?  

11A) How do you know this person?  What qualifies them to recommend this investment? 

NOTE:  Friends, relatives and business associates are not necessarily good investment referral sources.  Recommendation by association is not necessarily a good recommendation!

MYTH:  “If it is too good to be true, it must be too good to be true.” 

Reality:  It may well be true.  You must check it out.

If you were offered an investment 30 years ago in a newly formed company that claimed its computer program would one day run most of the world’s computers you may have thought that too good to be true.  Microsoft is true.

12) A fund manager, in the long run, is not significantly different from another.  It is wrong to believe one is far smarter than all the rest. 

13) An investment in a start-up company must be judged by its real potential market, not in the track record of the management.  If it was management’s prior performance that is necessary, there would be no new companies.  Innovators should be raw; administrators should be seasoned.

14) How much of your assets and retirement fund are you willing to place in this risk?  Every investment is an opportunity and risk.  How will you replace that amount if it is lost? 

15) Can you ask for and receive a list of the securities and positions the fund held on one particular day that you choose?  If, for any reason, that is claimed to not be possible don’t believe it.

NOTE:  It is not just a matter of how much you want to believe you can make, but how much logically, you can make.  It is not what you want, but what this opportunity is capable of delivering.  Do not enter a fantasy.  Crowing about your high earning investment today may see you end up eating that crow tomorrow, accompanied by your tears.

16) How much time did it take you to earn the amount you are going to place at risk?  Don’t save time by not reading the whole offering….and ask questions ….and get an independent opinion.  Logic before is better than law after.

A con artist can always try to talk you out of your money.  It is still up to you to pay that money or not to pay that money.  You must make your own decision and not follow the herd. You know where the herd ends up, don’t you?

Being realistic means never (hopefully) having to ask,
 who "Madoff" with your money.


Copyright 2009 Alex Kwechansky

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