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Is This Legit?

Posted on 12 November 2014 by David Merkel

Photo Credit: .SilentMode || Doubts that the deal is legitimate?

I’ve written a lot about financial fraud at Aleph Blog. ?I try to encourage people to be skeptical, because it is genuinely rare when a deal is exceptionally good for an average person. ?Most of the time in life, you are doing pretty well if you are getting a fair deal, particularly when it comes to financial matters. ?Most people selling financial products know more about the product than the?prospective buyer.

Thus, Aleph Blog has written about a wide number of deals that are bad, and those that are outright fraudulent. ?(At the end of this article, there will be a sample of articles that I have written.) ?Not that anyone appointed me, but I regard this as one of my sub-missions, in writing this blog. ?Cleaning up the investment world should be a goal of many legitimate investors, because the cleaner things are, the better the culture of trust will be for legitimate financial products.

Now, Aleph Blog does this service on two bases: free and paid. ?Free is for the simple stuff. ?If you write an e-mail to me asking “Is this legit?” and it is simple enough for me to give a quick answer through a blog post, I will likely (but not certainly) write a post on it, or point you to one I have written. ?I may even answer the companion question, “Is it a smart thing to do?” ?Most of what I do here will fall into the free category.

The complex stuff is another matter. ?I have done analyses like these for prior employers, and on a freelance basis for wealthy individuals and corporations. ?Examples have included:

Analyzing whether the Permanent Portfolio idea works or not (and other investing theory questions).
Analyzing a complex tax avoidance deal that involved insurance, securitization, and other factors.
Analyzing whether a private business deal looks legitimate.
Analyzing whether a securitization deal looks legitimate.
Analyzing complex bonds or other securities for value.
Giving a second opinion on an investment question.
Giving a second opinion on a new investment product.
Giving a second opinion on a financial plan.

I like an occasional complex project because it keeps my skills sharp. ?I am a good financial modeler, and though I did not go to the finals the last two years in the Modeloff competition, I placed well in the first round the last two years, and in the second round in 2013 was in the top half, and though I qualified, this year I could not compete in the second round due to a schedule conflict (presbytery meeting).

If a project does not fit my expertise, I will turn it down. ?Why waste your?time and mine? ?If I don’t have slack time, I will turn it down — my investment clients come first. ?But if you have an interesting project that you think might fit me, email me, and let’s talk. ?I am willing to sign confidentiality agreements, and not publish the results if need be.

Beyond that, let’s make the financial world better, and eliminate as many scams as we can.

Articles

On the ?770? Account?– using life insurance as an asset accumulation tool — generally a bad idea. ?(Gets a lot of hits a my blog regularly), also?Using Life Insurance Products to Fund Long-Term Needs
Why Are We The Lucky Ones??– on some private securitizations and collateralized loans that never saw the light of day due to my due diligence.
My continuing articles on promoted stocks
The Madoff series ? A New Appreciation for the Plumbing, Book Review: No One Would Listen, Book Review: The Club No One Wanted To Join, Book Review: How To Smell a Rat, Book Review: The Wizard of Lies, Enduring Ponzi
On Con Men?– on a sketchy business plan
On Con Men, Advanced Edition?– various sorts of?financial products that are usually not good deals
On Hucksters?– business ideas that were “too good to be true”
Get a Piece of the Schlock?– On “Rich Dad”
Selling Options Cheaply (Did You Know?)?– on structured notes, and other dodgy bonds
On Avoiding Con Men?– being wary of passive income streams generally
Book Review: The Big Con?– a review of the con men of yesteryear with applications to today
Permanent Asset Allocation?– on the Permanent Portfolio idea — I have more unpublished behind this.
Bombing Baby BDC Bonds?– even though the deal has gone well so far, the protections are weak, and the bonds are illiquid
The Art of Extracting Large Commissions From Investors?– legitimate financial products that you should usually avoid
Protect Your Older Family & Friends?– scams that prey on the elderly

Hey, thanks for reading… 😉 and play it safe, please.

On Avoiding Con Men

Posted on 22 August 2013 by David Merkel

I’ve written on this topic before, but I want to take a different angle of attack on it tonight.? Before I do, I would like to give links to some of the things I have written on the topic:

Okay, enough.? I’m surprised that I have written so much on this topic.? There’s more, but I leave out the marginal stuff.

This article is partially prompted by my review of Octopus.? But it was triggered by my receipt of an e-mail today, that when I clicked on the link, led me to something like this.

Passive income is one of the ways that scammers appeal to the greed of people.? You get money, and you don’t have to work.? But passive income stems from buying or creating something that will have continual demand.? That takes effort or ingenuity at taking risk, and if you are wrong, you could lose a lot of effort and/or capital.

Passive income is easy to achieve.? What is hard is making sure that it continually rises, and that it stays at a high level relative to capital deployed.

With President Obama, his book “The Audacity of Hope” brought him a lot of passive income.? But there was risk involved; who knew that he would be elected President?? Few of us writing books will get so great an audience, and get such a long tail.? Most books are here and gone.? Same for most songs.? Same for most plays, etc.? Royalties are not as easy as they seem.

Most royalties are wasting assets.? Mines get mined out.? Wells go dry.? Things that are published stop selling as much.? In that sense they are worse than bonds, because the yields decrease over time.

So, no, passive income isn’t a solution, and may end up delivering less than conventional investments.

Developing a Defensive Mind

I have a saying:

Minds work best when they are like castles, when there is a moat, and defenders at the ready to deal with deceivers with arrows and boiling oil.

Here is my main advice: you need to be skeptical, but not cynical.? Skeptics question, but can be convinced with adequate evidence.? Cynics think the world is rigged.? Here’s their flaw — they can be tricked into scams where they think they are on the rigging side, when they are not.

Here’s my advice to aid your thinking: the world is not rigged.? There are few if any significant conspiracies that deny wealth and power to the masses.? The reality is more banal.? Some people, as a result of their training, networking, and effort do better than others.? Most people don’t put forth sustained, focused, intelligent effort that allows them to accumulate wealth.

Are there some that make money off of government connections?? Yes, but they are not the rule, and they don’t advertise for passive capital.

Passive capital is a highly competitive place to be.? Making money with money is desired by financial institutions, pension plans, endowments, etc.? If there were an easy way to do it, the big guys would have figured it out long before you.

If it seems to good to be true, it probably is

Trite, but true.? Condition your mind to dismiss schemes that cannot fail, investments that are a one way ticket to riches, etc.? Get a sense of the scammer voice, where he invites you into a secret “club.”

Look, if I had a path to easy riches, would I share it?? No.? All riches stem from hard mental or physical work, even if you inherit it.? That is why you have to distrust those who try to scam you through proffering easy riches.? There are no easy riches.

There are no secrets in investing.? Don’t let anyone tell you that they have a secret tactic.? I don’t have a secret tactic.? I do have my own methods, which draw from a lot of well known methods, and my own sense of what works in business, which also stems from well-known ideas.

Avoid anything that makes you think you are in the inner ring — the precious few, who due to connections have been able to escape the ordinary lot of men, because they are part of the club that has the secret, or government connections to a secret program.

If someone has a great opportunity, and need passive capital, they will advertise it boldly, because they want the cheapest cost of capital.? Those that limit the message to a select few are likely scamming.

Final Points

Pay attention to auditors and custodians.? They protect you, and they should be high quality, and unaffiliated with the promoter.? Avoid those that do not market broadly — what I mean here is those that don’t go through major brokers.? The more exposure an idea has the more likely it is valid.?? That said, highly exposed ideas will likely produce market-like returns.? There is a trade-off here.

Also, all investing involves uncertainty.? Reject those that tell you something is a sure thing.? THERE ARE NO SURE THINGS!

Sigh.? Do I have to go to that level of emotion/energy?? I GUESS I DO! Because the scammers keep coming around and milk the unwary.

PS — I know my readers are smarter than most, but if you have friends or relatives that you think might need this, please forward it on.? Delete this last line to protect their self-esteem.