Sunday, November 04, 2012

Why did people stake their hard earned savings?

I cannot understand why well educated Singaporeans would give away money to somebody who promises to pay them 2% a month and to repay their investment at the end of 3 months. They may be given a gold bar for 80% of their investment - so their risk is only 20%. But it is quite troublesome to keep the gold bar, so they are likely to entrust the gold bar to the company for "safekeeping". In that case, they are exposed to the risk of losing 100%, if the scheme is a fraud.

Could the "trust" be due to the following reasons?

1. That the person who sells the scheme to them is a person that they trust, e.g. a relative or friend?
2. That the company is able to "spin a story" that they make the profit from trading in gold?
3.  That other people had invested previously and got back their monthly return and their invested capital?
4. That they are willing to take a bet, and to lose their invested sum?
5.  That they are so greedy to get the attractive return that they lose their senses?

If you know of people who have invested, can you share their reasons?


Terence Soon said...

Your 5 reasons above are correct.

A friend of mine recently bought into the gold scam. I'm not sure whether it's under Genneva, but the underlying business model for all these scams are the same. He bought it even though he seeked my advice a few months back and I told him that it was too good to be true and to stay out of it.

Your point about seeing people get back their returns hits the nail on the head. This is how ponzi schemes thrive. They can only get more capital through more investors, and since they are running a scam business, therefore the only way to convince people to buy is not through facts, but through actual returns. They can repeat this cycle for many times, but all ponzi schemes are bound to fail. MLMs fall into this category. There will ALWAYS come a time where there is not enough investors. Afterall, our human population is limited.

Another thing I encountered was when I heard my colleagues talk about some insurance agents from a particular large company sell this scheme. Naturally, a client who has bought from an agent repeatedly would have established a certain level of trust with the agent, and so when the agent convinces him/her to part with more money for another 'investment', they usually don't do their due diligence. This can happen to anyone, regardless of their education level.

The lure of money is very strong, and sometimes people don't use their sense of logic when discerning between a good investment and a bad one. I just pity the newest investors who would have lost everything. At least the older investors would have made back most of their money, or even made a small profit if they were in it for a few years. My friend lost a 5 digit figure in it, so I'd really advise everyone to conduct their own checks before they get into any investments.

Lye Khuen Way said...

All the above 5 reasons and the most important other reason is that no Authority has explicitly declared that the scheme is irregular or illegal or that no Authority is responsible!

Of course, greed has this blinding property, so whatever level of education one has is irrelevant if there is no discipline.

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