Suppose you created a Ponzi scheme that worked like this: For every dollar someone thought they were investing in your scam, you simply kept ten cents and put the rest in the bank, not invested in any way.

Every month you would generate a fake statement showing that your victims earned some healthy return, say 15%. You wouldn't need to worry about people withdrawing money because your fund would allegedly be the best around, at least according to your fake statements. And you'd still have 90 percent of the money sitting in the bank in case someone really needed some back.

This scheme would be highly illegal of course. It would also be one of the best investments anyone could have made over the past ten years, assuming few people withdrew any money. Most legitimate investment funds lost more than this hypothatical fund.

Almost everything I ever learned about investing turns out to be wrong. I learned that buying and holding a diversified portfolio of stocks was a sure winning strategy in the long run. So far, my lifetime stock investments are negative.

I learned that the safest investment is real estate, especially in California, because "they aren't making any more land." That theory hasn't worked out too well.

I learned that investing in California municipal bonds was extra safe because they were insured. That's great until the insurance companies themselves become insolvent.

So if everything that was good is now bad, is there any investment that we all assumed to be bad that is now good? (Other than stuffing cash under the mattress. Too obvious.)
Rank Up Rank Down Votes:  +11
  • Print
  • Share


Sort By:
-2 Rank Up Rank Down
Mar 17, 2009
[That's great until the insurance companies themselves become insolvent.]

Your scheme is great until the bank becomes insolvent.
0 Rank Up Rank Down
Mar 17, 2009
SCOTT! In case you haven't heard, check out the new batteries: http://news.bbc.co.uk/2/hi/science/nature/7938001.stm
+1 Rank Up Rank Down
Mar 17, 2009
The most underestimated investment today is to get lots of people to like you. But, of course, you already know this--otherwise you would have stopped blogging a long time ago...
+2 Rank Up Rank Down
Mar 17, 2009
I've put all my money into shares in debt collection agencies... its the real growth business of today!
Mar 17, 2009
Invest in (drinking) beer, that is the safest. You buy beers, drink them and have fun. After you return them and get your return deposit back. That way not all your money is lost. Beats a lot of stocks these days !
Mar 17, 2009
well, in the past my contrarian advice would have been to pay your house off - eliminate ALL debt! we did that & I looked like a frakin genius until the government got in the bailout business! now we look like complete chumps for not only buying a house we could afford (millions of people are claiming that) but for actually paying for it! and what do we get for this? why we get to pay for the idiots, that's what!

in the mean time we're accumulating cash at a pretty good clip - we both have good jobs (for now) but nothing looks attractive as an investment...

on another front how are you doing healing from Sarah? I ask because today is the 1st anniversary of our cat's death... we've since got another one (a pedigree Siberian - IMO best breed there is!) but I was curious where you are w/that?...
Mar 17, 2009
After having seen the shenanigans (with apologies to St. Pattie's Day) of Wall Street and having all their dirty laundry exposed, it occurs to me that the whole of Wall Street investing is nothing more than a giant Ponzi Sceme, or at least a very elaborate Pyramid Scheme. No one under any !$%*!$%*!$%*! can be trusted with anyone else's money. Period. And don't even get me started on the corruption of the market makers - the wholesale side of this fraud that only just misses being covered by the media. No one, except those privvy to the wink, wink, nudge, nudge can really make (read:steal) any money in this scheme.

It would not surprise me at all to find out at some point that all those executives at AIG getting paid their bonuses were tasked to bring in a trillion dollars to the firm. And they delivered. The only place they could have got that amount of money is by scamming the Federal Government and creating a scenario where the Fed would HAVE to pay out this obscene amount of money to AIG. Greed. Depravity. Premeditation of fraud. And an morally bankrupt administration whose policies could be corrupted easily because they were already corrupted, bought and paid for, and didn't have a single intelligent thought among them.

So why isn't Tush Limburger cheering for these executives getting these bonuses? Go, Tushie, GO! Open that pie-hole and let some more of that stinky, smelly gas escape while making sounds agreeing with destroying our economy and country. After all, he is the cheezy, self-proclaimed idiot spokesperson for the corruption and imbicility that led all them into this moronicide that put together this giant fraud.
Mar 17, 2009
"So far, my lifetime stock investments are negative"

So what? It may not be intuitive, but its all relative. I prefer to lose money if I lose less than the average, than to have positive returns if they are less than the average, because money its not something tangible, its just a measure of relative wealth.
Mar 17, 2009
Having gone to my first real estate seminar in 1987, I've spent a lot of time examining the flaws in these presentations. The fundamental fallacy of "they aren't making more land" is the corollary that we aren't using very much of the land we HAVE. Something like 6% of the total United States land area suitable for building is actually, well, built. And that's AFTER you remove all the federal parklands, swamps, deserts, salt flats, etc. We could readily provide over sixteen times the housing we currently do, provided people are willing to live a little farther from other people.

And with our society becoming so mobile... well, "housing prices always go up" is likely to become a REALLY big lie within our lifetimes.
Mar 17, 2009
First, precious metals and any tangible good are good things to buy when markets are doing well (they're not usually too expensive then) and a great thing to hold during times where the market is !$%*!$% - not because they go to 3x the value (although you could sell some then to take a profit), but because they retain value.

I think silver is better than gold. It is used in far more of our manufacturing, medical, computer, and other sectors than even gold. And it is probably even easier to sell back to the banks.

Metal Futures? Probably avoid. My understanding is that if they stopped selling futures today, it would take years to produce even the ones from the last year because of oversubscription. They effectively run that market based on the understanding that people will roll over their investment into more futures rather than taking delivery of specie.

Generally, hold any tangible good. Real estate that is valuable by virtue of being in a beautiful place or that could be valuable seems like a good bet (not making any more) but is a bit dodgy because current valuations are still too high and because, thanks to taxes, there is an active drain on your investment.

Oil (if you could buy the stuff directly and put it in a tank in your back yard) is good - we're not making much more of it and I don't see us stopping dependence on it for decades even if we try. But how do you actively own barrels of oil that are in your own control? And are their any risks of decay of your investment in storage?

Similarly, if you could identify other tangible goods that could be safely and easily stored, those would be good candidates. You need to find things you can store and have direct control over, that don't have an annual tax attached to their ownership, and that have a value that isn't one dimensional - it should have broad based appeal or satisfy a broad need (like silver). It needs to be something that will keep in storage.

Given that the governments and banks are running the money presses already, devaluation of any holdings held in a currency (and right now, everyone seems to be doing it so there in no good haven) seems an inevitable result. Even if you have shifted into 'safer' investments, if they're held in a currency and the gov't reduces currency value by their policy, you are losing money.

But gold, silver, and other sorts of tangible goods you can sell back to the system for a value that is determined by their usefulness and is independent of government policy (and is sold back at a valuation in currency based on when you sell it back) seems like the best hedge.

Governments hate this sort of thing because it is money taken out of the economy. Money you put into conventional investments is then loaned out, reinvested, etc. by the banks and investment firms. That's moving money that helps power the economy and generate wealth. Money sitting in hard goods is not. But when things go south and people in the financial sector or government sector make bad policy choices or get vastly unlucky (or worse, both at once), the hard goods scheme looks a lot better. It doesn't appreciate like the other scheme in good times, but it is a hell of a lot better at preserving value in dodgy times. And how much your stock portfolio or company stock options were worth a year ago is irrelevant unless you sold them then - what matters is their value when you need to cash them out. And right now, most people have taken a big loss.

So, tangible goods for the win (at least as far as protecting your investments go).
Mar 17, 2009
Maybe, just maybe, this crisis is caused by capitalism reaching its limits. Looking back on productivity gains, they follow an exponential growth curve. As productivity reaches a certain threshold, we as a society will require less and less capital to produce the same living standard (in terms of goods and services offered to the population). Since less capital is required, there are less opportunities for investment. The result is that investors have been looking, in massive droves, for the next big thing where to apply their money, creating investment bubble after investment bubble: housing in the 90s, dot-com in the early 00s and now housing again in the late 00s.

If this is true, then easy capital gains are over. Blind investment techniques, like portfolio investments, will reduce their gains to about inflation level. The best investment opportunities are those certain to create value, and these will probably require the direct intervention of the investor. Take restaurants as an example. Well managed, a restaurant will always be profitable.

The easy solution would be to expand first world living standards to the rest of the world. I don't believe, however, that we have enough natural resources for this to be feasible. Not until we solve the energy problem, at least. Then we'll have a materials problem (steel, plastics), but that may be solvable with scientific breakthroughs I don't know of yet (there are some promising results on carbon manipulation, and God knows there's lots of carbon out there).
Mar 17, 2009
If your investments are now worth less than you invested over a lifetime, say, 20 years or more, I think you need to reconsider your buy and hold and receive market returns strategy. My investements (mutual funds) have been actively managed by an advisor for nearly 20 years. Even after this past year, and yes, my investments went down hard like everybody else, my total is still much, much greater than what I invested over time. I expect it will recover much faster than market averages as well, based on prior experience with the tech bubble.

The trick, of course, is to find an advisor that can provide, net of his fees, above market average returns over time. Mine has.
Mar 17, 2009
I cashed-out my 401k and put it all into Sham-Wows. People love those things. I expect to be able to retire comfortably by August at the latest.
Mar 17, 2009
Thought you might be interested.
+2 Rank Up Rank Down
Mar 17, 2009
Gold has been the best buy over the last 10 years...

If I remember right, it was in the $300's/oz a decade ago - this year it's been fluctuating between $900 and $1000/oz.

Although who knows what'll happen tomorrow.

+2 Rank Up Rank Down
Mar 17, 2009
Invest in yourself if you have a good idea. You'll be happier, even if it doesn't work out.

If you're not an idea person per-se, invest in folks you trust who make products you like and do so in a method you understand. You should also understand how your money will come back to you, and that should be based on selling goods and services, not "getting bought by Disney."

As long as you believe yourself to represent some part of the "middle of the bell curve," those products should always have customers.

Mar 17, 2009
How is running a restaurant working out for you? It's a cliche that this is a bad investment.
Mar 17, 2009
Stuffing your money under a mattress isn't going to matter much when the big quake hits and instead of your home being a hilltop villa, it turns into an undersea marine habitat. Gold has always seemed to be safe, at least that's what those commercials that encourage me to send in my old gold jewellery for cash keep telling me. And, carrying a gold brick in each pocket will keep your feet on the ground while walking through your new home / manmade coral reef. Here's hoping you and your family are out of town when it happens.
0 Rank Up Rank Down
Mar 17, 2009
Invest in wealth creation.
Mar 17, 2009
Well, actually, this economic crisis might have been a great way out of getting caught for running your proposed ponzi scheme; If you were already faking returns, you could hypothetically fake having lost most of everyone's investment gains, either leaving everyone with somewhere in the neighborhood of 90% of their original investment, or scaling everyone down according to the fake gains they had made.
Get the new Dilbert app!
Old Dilbert Blog