Sometimes, there’s no question what something is.
If it looks like a duck, walks like a duck, and quacks like a duck, then it’s probably a duck. There’s no ambiguity. Yesterday several news outlets reported that a popular foreign exchange trade site had vanished, along with over $1 billion in account balances.
Investors around the world had been assured by video testimonials and consistent returns. The site (secureinvestments.com) showed a Panama address and listed toll-free numbers in Australia, Canada, Hong Kong, the UK, and the US. They were responsive via email. But they promised low-risk returns of half a percent to one percent per day. One investor saw his money seem to grow four-fold in only 10 months—a 170% annualized return.
Of course you know where this is going. When he sought to withdraw some of these gains, he experienced delays and excuses ranging from tax-law compliance to web-site maintenance. Eventually, the site went offline and never returned, taking his account and more than a billion dollars with it, based on data posted before the site went down.
We can sympathize with people trying to earn more than the fraction of a percent that bank deposits pay today, but there’s no free lunch. Absurd returns that would eat the world in a few years can’t continue. This applies to scams like this and Madoff as well as the internet and housing bubbles and even some legitimate hedge funds. Past performance isn’t just not a predictor of future results—it can actually indicate the opposite is coming.
The best defense against these kinds of scams is a little common sense: if it looks too good to be true, it probably is.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!