Here is my cheat sheet for looking into prospective investments. Of course, this does not guarantee that your investment will produce profits, it just helps in making sure it IS an investment.
Internet investment scams are a plenty. But, they are of the same size and shape of the scams that preceded them. And the same points define them. Lets take a quick look at how to spot them.
Stay away! if you see these points in a potential investment:
- You need to pay any money to look into it completely and satisfactorily.
- The investment does not make sense. It’s not that you’re not smart, lots of data that leads nowhere is a great way to make your head spin while you pull out your credit card.
- The money goes into a club or company where they keep your books or “separate accounts”. Usually the company will be offshore. It is easy to run away with all the clients money when it’s in one account.
- Any proof or documentation of hearsay or sales pitch is hidden or missing.
These are points you should look for in an potential investment:
- It is free to see results, documents and any other proofs that may be required to suit your due diligence and understanding needs.
- Your investment is in your own account (you opened it in your own name) at a bank, brokerage or for some investment types an intermediary (expecting delivery of something or if your investment is secured by something tangible, make sure to deal with an intermediary).
False “positive” points to stay away from:
- “Your friend made money so it must be good.” Refer to the above points regardless.
- “Your friend is introducing you to the investment –he wouldn’t rip you off.” Well, maybe he wouldn’t, that does not mean his due diligence was any good in the first place. Do YOUR OWN Due Diligence to YOUR OWN satisfaction.
Points that are thought of as “golden rules” to keep you out of fraudulent investments, but are in fact irrelevant to due diligence:
- Low minimum.
- High return.
- Feels too good to be true.
For example; A car wash franchise was seeking start up capital for a pilot car wash; $100 dollar minimum investment for private company shares that provided a dividend. Your return on investment was projected at 100% within 1 year plus bonuses like 1 free car wash per month for life, and investors had first dibs to buy the franchises. This scared so many potential investors away that in fact they had to turn down the profit margin to fully procure the capital they needed. But they passed through the above numbered points with flying colors. The projections were met and a few lucky investors got that first offer -which was unbelievable to most due ONLY to the 3 points directly above.
This has been terse and not nearly complete, but this generalized guide will keep you out of 90% of those pesky fraudulent investments.