Everyone tends to look for the easy way out. Take the easy route to making money. Unfortunately, there is no easy route to making money. Matter of fact, if someone claims them         have one, it is most likely illegal or a fraud.

The number one rule in investing is to not lose money. Rule number two is look at rule number one again. It is not the return on your money that matters, but rather the return OF your money.

The two biggest schemes going around Thailand today are ponzi schemes and pyramid schemes. You will see advertisements like 10% return guaranteed. Some are even advertising 10% or more every month. Many of these claims are based on algorithms or system trading in forex or the stock market.

These are all false.

Why?

It is impossible for anyone or any computer to predict returns. I have been trading for over 20 years. I have no idea whether I will make money in a trade or not. Will I make money today or not? I don’t know. If anyone says they can, they are predicting the future and that is impossible.

How do pyramid and ponzi schemes work?

They all start with one promoter who comes up with the sales pitch. Then he recruits others to solicit investors into the scheme. Some of the early investors will get paid out in order to tell others that the scheme is real and that “I got my money.”

This proves the doubters and removes the big question mark. If he/she got their money, then it must be real.

The problem is that it is not real. The money paid out came from new money coming in. New investors are providing the money to pay out the old investors.

In the end, all ponzi and pyramid schemes come crashing down because there is an eventual run on the bank. Everyone wants their money out and there isn’t enough to pay everyone. This is what happened with Bernie Madoff. The great 2008 crash caused his investors to panic and they all wanted their money back. He then confessed, but it was too late. Billions of dollars were already gone.

What about those that got their money?

I am not sure how it works in Thailand, but if the ponzi scheme originated in America, the Federal government will come after the investors that got their money out. They will have to pay back their gains.

Lesson of the story?

There is no surefire way to get rich quick. If someone does know, they sure aren’t going to share it. The only thing one can do is invest in quality companies with stellar management. Fortunes are made over the long run, not in get rich quick schemes. Be careful if you get pitched an investment that sounds too good to be true. It most likely is!