Sunday, 3 August 2014

Problem with Exotic Investment Schemes

There are many investment schemes all being offered to investors promising returns of XX % and for a limited time only... XX + X % just to make you feel special. Please go through the business model to understand how the scheme can make you money and what is the structure they offer you.

The recent problem with, Geneva Gold, ECO house just highlights the issue with having no control and having the property investment being thousands of kilometres away. Yes, it may be protected by law but how do you go about enforcing it? In the Brazilian Court? How do you stack up to fight a case against the locals?

Notwithstanding the basic rules of investment of buying low (below market value), sound fundamentals of the product and cash-flow and a exit strategy or two. These investments throw in a few curve balls too!

For exotic investments, you have to think and understand more :

a.  Investment structure

How are your investment structured? Is it a company guarantee? Who is guaranteeing it? Do you have title and law protection? Even if you have all these, how do you enforce it? I heard in the UK, you have to have a deposit placed with the court to commence court proceedings.

If you do not know or do not have the means to pursue the case, please be nice to yourself and not pursue the investment.

There are vendor loans property that do not give you title of the property til the vendor loan is cleared. Are you strong enough to take them on if things go sour?

b.  Market

Do you have a market if you want to sell it? Certain products practically have no market and hence you are stuck with a hot potato. You, in good faith would not be able to pass these hot potatoes out to other people.

c.  Control

The most important considerations would be Control. How much control do you have when the situation changes?

Always follow Warren Buffett's rule no. 1 = Never lose money.

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