John appeared in a village market and announced to the villagers that he would buy monkeys for 20,000/- each.
The villagers seeing that there were many monkeys around,
went out to the forest and started catching them. The man
bought many of them at 20,000/- and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at 30,000/-
This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even
further and people started going back to their farms.
The offer increased to 40,000/- each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at 100,000/-!
However, since he had to come to Nairobi on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers. “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at 80,000/- and when the man returns from the city, you can sell them to him for 100,000/- each.”
The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man or his assistant, only monkeys everywhere!
That’s how stock markets,Quail farming and pyramid schemes works.
It brings us fast forward to the aspect of investment risk and here we go:
Extreme Risk: How People Lose Money in Fake Investment Programs
Risk defines entrepreneurialism and as an entrepreneur, you have to be willing to take risks on a frequent basis. However, not all risks are equal.
For instance, you’ll hear someone telling you to invest in Program ABCD so that you can get returns of up to 5% per day without working for it. Or Invest Ksh.10,000 and then invite 4 other people and you’ll get 10% of what they earn…again without working for it…and so on.
Be watchful! Such scams have been dominating the headlines for the last 10 years. Investors, majority of them being small business owners in Kenya, have lost millions of cash yet no one seems to be taking note and advising them accordingly.
How do you tell a phony investment venture from a viable one? Here are some tips for you to carefully consider.
1. Avoid investments that promise insanely high returns
The huge interest rates promised are not only unrealistic but also unsustainable (sometimes up to 5% per day). What happens is that, once you deposit your money with the so-called “fund manager” the scheme will collapse before you even recover a quarter of your money.
Think of it this way. If banks are currently offering loans at an interest rate of 20% per annum why would someone borrow your money and pay as much as 5% per day if he or she isn’t up to something bad?
2. Avoid investment programs that don’t operate on a clear revenue model
“We invest in online Forex market”, “We are currently handling massive real estate projects”…these are just but a few of the fake claims made by architects of phony investment programs.
If you request them to produce documents for evidence, they’ll usually give you fake ones. Don’t buy their stories.
My advice is that you should not invest in any type of business that does not have a clear revenue model. If possible always make a point of confirming the authenticity of the documents you are presented with.
3. Don’t rush to invest simply because your friends are in it (do your research)
Don’t rely on someone else’s research. You’ll fail if you rely on hearsay. Before you rush to commit your funds to any sort of business ask yourself if it is the logical thing to do.
Does the investment idea seem long-term? Has it been tried and tested before? Who are the people behind it? In other words, take time to test the logic behind the idea.
If you smell a rat; run for the hills.
4. Get rid of the “easy money” mentality
In the quest for quick growth and development, most small business owners often fall into the temptation for quick easy money. We fancy the idea of being told that we’ll become millionaires overnight.
Well, am not saying that it is not possible to become a millionaire overnight. In fact, it is possible to graduate from a small-sized business to a medium-sized one in 24 hours. But you have to work for it. It takes, hard work, sacrifice and strategy.
So shun the “lottery mentality” and roll-up your sleeves ready to sweat for your success.
5. Don’t take a loan to invest in an uncertain project
You hear that there is a deal somewhere that you can invest in and get 100% returns in less than 100 days and then you rush for a personal loan so that you can take advantage of the situation. Again, this takes us back to point number, second sentence.
Quick facts about “Get rich quick investment programs”
You’ll lose your money 90% of the time
Every cent earned in such schemes is stolen from a future investor
It is illegal to run or recruit someone to join a phony investment program and you can be sued for the same
Always seek expert advice and training before committing your hard earned funds to any project
Before you invest in any investment plan out there, it is important to ask the right questions. How will my money be invested? What is the rate of return? What will happen if the investment plan fails, will I get my money back?
Always remember that if a plan promises you’ll get rich quick with no risk, or doesn’t tell you how your money will be invested, you should exercise caution before getting on board.