The voice on the telephone says, “So, you don’t like the 1% rate you’re getting on your bank savings accounts and you want to get more. I’ve got a great hot investment for you. You can jump in now and get 8% a month. Oh, you don’t like 8%, I’ve got another one at 25% and another at 50% a month. “ From the beginning of time until today, there has always been a direct relationship between risk and reward. A greater risk will generally produce a greater reward. However, if the reward is too good to be true, it most likely is not true. When the reward is too unbelievably good to be true, it means there is a very believably good chance you’ll lose all your money.
Look at these investments with unbelievably high returns.
1919 Charles Ponzi, promised investors a 50% return on their money within 45 days
1970 Maria Branca dos Santos promised an interest rate of 10% per month.
1992 Damara Bertges and Hans Gunther Spachtholz promised doubling an investor’s money in just a year.
2005 Syed Sibtul Hassan Shah convinced people he would double their money in just 7 days.
2008 Bernie Madoff printed monthly account statements showing whatever return he thought the client might want to see. When clients wanted to redeem their investment, Bernie took the money from Peter and paid Paul. He kept doing it until there was not enough to pay Paul anymore.
The people who invest in schemes like these lose their money.
A reasonable return may not sound as exciting as a 25% return each month, but it’s much better than losing all your money to a thief. There is a lot to be said for investing prudently and then having the patience to let it grow. Investors who are looking for quick easy returns on their investments generally lose out. Slow and steady is a winning investment strategy. The consistent long term trend in the economy is upward. Charting a line through the cyclical economic highs and lows will give you an upward trend. Paul Samuelson, the first American to win the Nobel Memorial Prize in Economic Sciences, said, ‘Investing should be like watching paint dry. If you want excitement, take $800 and go to Vegas’ and he was absolutely right.
It makes to take a good look at the fundamental characteristics of a company. A good picture of the management, competitive strength, risks, product growth and financial resources can be found in the company’s annual report.
It pays to look under the hood of the annual report of a public company before investing.