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High-Yield
Investment Programs - Myths & Realistic Expectations (Continued)
Before you end up in the jackpot with one of these scams, visit
our syndications page please. You should at least consider some
realistic opportunities in commercial real estate development finance (something
you can actually see, touch and stand upon).
Common HYIP Securities That
Are Scammed
Here are the most common types of HYIP security scams we
are currently aware of and they are all (to some extent - more or less) reliant upon the concept
of arbitrage:
-
MTN Notes. So-called "Medium Term Notes" traded at
discounts between "Top World Banks" are perhaps the biggest scam of all time
according to Alan Greenspan, the former Chairman of the Federal Reserve. MTN
notes do NOT exist as securities.
-
Forfeiting or Forex Trades.
These scams are based upon trading in foreign currencies and rely upon the
mammoth scale of the numbers involved to woo investors/victims by promising
extremely high "investment leverage". Don't bother.
-
Discounted Bank Guarantees.
A bank guarantee is a security in the form of a promise by a banking
institution to unconditionally pay funds on demand when certain conditions are
met that are specified in the security. The trick here is that there are
so many variants of bank guarantees that are legitimately traded in the
capital markets that the scammer is relying upon "brand recognition" of the
security as the basis for luring in victims. The most common use of bank
guarantees is as secondary security collateral for a commercial loan
transaction and scammers rely upon the ignorance of the investor/victim as the
basis for creating legitimacy for the proposed transaction. If you
aren't already a sophisticated banker, then you have no business in this
business. You will be taken to the cleaners.
There is such a thing as a higher-yielding
transaction. This applies mainly to the bond arena where it is no longer
"politically correct" (in investment banking circles) to refer to junk
bonds as such; they are called "higher-yielding" securities.
This is easily parlayed into the "high yield" scam arena by pointing
to all of the higher-yielding funds that "already exist right under
everyone's nose". Poppycock. Higher yielding
transactions (on the equity side - the side you are interested in) refer to
structured finance transactions designed to provide a very high degree of
investment leverage for a commercial real estate development program.
Why? Commercial real estate development programs create (typically)
significant gains in value over a relatively short period of time. The
term "structured finance transaction" is frequently borrowed and used
in the HYIP scam lexicon and you can find different forms of structured finance
transactions on the Internet. This lends a patina of legitimacy to the
scam as well. Just enough to keep the greedy and fearful hooked and in the
game until they are taken for all they are worth.
Please be careful! Lawyers are there to help protect
you. Consult one, please.
Analysis Of The HYIP Market
Opportunity
For those jaded diehards who still think that their
particular HYIP opportunity is the "real deal", here follows an analysis of the
market opportunity and underlying characteristics of securities trading,
financial leverage, and realistic expectations for trading programs.
What is a high yield investment?
Technically speaking, a "high yield investment" would be
any investment in a security (debt or equity) that significantly outperforms
similar securities of its class or market. To accomplish an analysis that
you can not only understand, but embrace with confidence, then consider the
issues in their proper context:
-
The Market. The market
for investments in the United States are, by and large, the public equities
markets - the stock market. The historical track record of the public
equities markets reflects an average gain of between 10% to 14% per annum.
That's a far cry from 100% per month or even 100% per annum by a couple of
orders of magnitude. The yield question is further complicated by
the fact the public equities markets are, in part, governed by events beyond
the reasonable control of the investor and the company that has its equity
ownership publicly traded. Wherever one finds investment outcomes, over
which the principals have no reasonable control, you find the the
preconditions for disaster being sufficient to destroy most short-term trading
strategies (or wouldn't everyone be doing them?). This means the only
really logical and sustainable investment strategy for publicly-traded
securities lies in long-term appreciation based investment decision making
because, over the long-term, irregularities and corrections caused by events
beyond the reasonable control of the investor are averaged out of the gains
and losses.
-
The Yield Issue. Some
of the more infamous stock pickers of our time (Warren Buffet, Peter Lynch,
Walter Johnson, et. al.) made their reputations based on outperforming market
expectations. What were their expectations? They were/are always
looking for companies with sound management, sound business prospects, and
opportunities that added up to an expected average annual growth rate of 20%
to as much as 25% per annum for a holding period of at least five (5) years!
In other words, the best of the best are looking for double the average market
performance based upon a simple strategy that, if you picked five (5) stocks
at a time, then:
-
Two (2) of the stocks would
be a bust - no gain or a slight loss.
-
Two (2) of the stocks would
meet expectations - 20% to 25% appreciation per annum.
-
One (1) stock out of the
five (5) stocks would exceed expectations for the holding period, though
they never expected any stock to continually grow at a sustainable rate past
the five (5) year holding period window.
-
Securities Class.
Generally, debt securities have very little movement in trading range over
time unless the company underlying those securities undergoes unusual growth
or unusual contraction, while equity securities can sometimes experience
dramatic trading range changes due to the same types of events, but the vast
majority of investors are ill equipped to be able to recognize these
opportunities, much less position themselves to be able to take advantage of
the opportunity due to the very short window of opportunity associated with
dramatic trading range shifts for a given company's securities.
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