It has been a busy couple of weeks for yours truly. It has been that time of the year when I settle a few football bets that were made when my wild-eyed and unfounded confidence in the Purple Princes saw me ignore the sensible advice of my wife.
I stupidly put the odd bottle of red on the fact that the Dockers would finish higher on the table than the Eagles at season’s end. As a long-term fan, you would think I learnt my lesson but it is a lesson that can be shared with all of those thinking of taking a punt disguised in the veil of “making an investment”.
There is a world of difference between the two.
We regularly receive calls from someone who is keen to have us cast a professional eye over some new investment scheme. Equally, someone’s unbridled confidence in their own ability to pick a winner sees them sink all of their spare cash (and often, the not-so-spare cash) into their new enterprise.
Let’s start with a new, “make-lots-of-money” type scheme or investment.
Invariably, it’s being touted by someone with a direct interest in you handing over your cash. Be wary of anything where you send money directly overseas or you’re required to keep the details secret. In isolation or together, these lift the probability you are being scammed to about 90 per cent. Australia has a strong and effective regulatory regime championed by ASIC and the Tax Office. Sending money overseas immediately removes you from their protection. Send it offshore and there’s a very strong chance you won’t see your money again.
The keep-it-a-secret ploy is typically used to stop you getting a second opinion. You need to listen to the little alarm bell tinkling merrily in your ear. If you’re restricted from taking it to an accountant or qualified adviser for a look over, watch out. It never happens in real life. Any professional investor will almost always use outside experts and a second pair of eyes to fill in the knowledge gaps and give a second opinion.
Assuming you’ve avoided the outright scammers, do you completely and fully understand how the money will be used and who will get paid before you, the investor? There’s many a good idea where promoters, managers and others are feeding off the money supply, leaving just cents in the dollar for investors.
Does the business actually make sense? If it all seems a bit vague using terms and techniques that you don’t understand and can’t work out, then walk away. Blinding an investor with science is an old trick and often masks costs and risks that if understood, you wouldn’t touch.
Lastly, weigh up what you can genuinely afford to write off. With a new speculative investment, treat it like a punt at the casino. Typically, we wouldn’t put any more than about 5 per cent of any total investment portfolio into a speculative investment.
And a word of advice from someone who’s been bitten plenty of times. Don’t get sucked in by hype and avoid betting on the Dockers.