How not to be left penniless after a failed investment

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

An excerpt from the book of an economist and investment specialist on how to avoid elementary mistakes and not lose money.

There is a well-known tale about a sculptor who cut off everything unnecessary from a piece of marble. Witty, but hardly practical. This is where similar advice can be helpful. To lose money, you need to step into one of the puddles (error classes) or several at once. No puddle - no loss. Just watch what you are doing, how far it is to the nearest puddle. If you do not run into it, the capital will be at least preserved, as the maximum will grow. By itself, if you don’t try, he will not run away.

The first way to lose money is to hold the wrong asset class. Money or goods. Everything is clear here, more interesting further.

The second way is to buy yourself a fake certificate that you have them instead of assets. A “fake note” can be replaced with “an obligation to deliver an asset or an amount that is highly unlikely to be fulfilled”.

How does it all start? Investing in the first step - you transfer money somewhere to an account or give it to the cashier. The question is, what do you exchange money for? In the worst case, you transfer money to an offshore company in order to see in your personal account on the website that you have, for example, CFDs on gold or Coca-Cola shares. If you want to exchange this record back for money, you may not be able to. Because you didn't buy gold, you bought the record on the site. And it takes a lot of generosity to exchange some record for money. Not the fact that it will be shown.

“Stop,” the observant reader will say. - But money changes for recording anyway. When I put them on a deposit in a bank, it also turns out that I am investing in some file? That's right, but, as they say, there are nuances.

Any asset is a record in a file, there are no paper physical shares. It all comes down to distinguishing correct entries from incorrect ones.

Key words: depository, exchange, normal jurisdiction.

The record that you own something, as an option, itself must belong to a third party. For example, you buy units of a mutual fund. The management company will receive money for management from you. But you do not transfer money to her for a share. The shares are in the depository, the Criminal Code cannot take funds from there. And the depository cannot either. He can only receive his five kopecks for the safety of all records. This is the very third party that excludes the possibility of theft of the entire amount.

Another option: a record of what you owe is made by the debtor, but under the strict control of a third party, in no way connected with the interests of the second.

In the sense that it will not cover the theft, but will be for you. Example: a national banking system under the control of the Central Bank. Yes, you bought an electronic record, but entered into a relationship not only with the bank, but also with the Central Bank. And he will definitely not throw you at you, at least not by losing an electronic record or refusing to exchange it for money.

It's another matter when there is only you and him and you don't even know who he is. Some site of some company registered somewhere. In theory, there could also be a regulator (supervising third party), but in practice it won't help you. In the worst case, there may be no company at all at the specified legal address. In the worst case, there will be no legal address.

There is no need to enter into a business relationship with an anonymous site.

Anonymous means that you do not know the real names of the owners or employees. In the technical support, there may be written "consultant Marina Takoy-so", and it may even be around the clock. But we bet that the consultant's name is not Marina?

At one point, the anonymous people decide that they have already collected enough money. All that remains is to delete the site with all personal accounts - and that's it, profit. None of the victims will find someone they don't even know. Okay, in one out of ten cases, the victim knows the owner's last name and will write a statement on him. In one out of ten cases when this statement is made, someone will be arrested. But even in this, 1% of the scenarios do not return money.

Here is the cynical rule of the financial markets.

If it is profitable for the counterparty to throw you and he can go unpunished, sooner or later he will do it.

At the same time, it is impossible without counterparties. No one will sell you securities directly, only through a broker or fund. It is disgusting to live in such a world in places, but in general it is possible. And that's why.

Not everyone benefits from throwing you and not everyone is so easy to throw you.

Don't look at people, whether they inspire confidence or not. For those who cannot be trusted, the main professional skill is to inspire trust. They were specially taught how to please people and what to do with them. And you weren't taught what to do with them. Don't believe in human honesty in the financial field. Believe in the institutions that force it. If they are.

Any investment, we recall, begins with a bold, decisive act: you transferred money to someone, and he issued a piece of paper (email, account).

The question is, what is this piece of paper worth? After all, your interests do not coincide - he will be glad to any reason not to pay. Will he find such grounds and is it profitable for him to throw you at the cost of curtailing his main activity? Yes, even if you have to donate the site. Hence it is clear why you can trust large banks and brokers - this price is too high, and not because there are especially sincere owners. The pyramid's answer to the question about the foundations is “to spit on the grounds”, to the question about the risk to the main activity - “this is our main activity”.

Everyone knows about the pyramids, let's not talk about them. But we said that any financial institution that accepts someone's money is a potential pyramid scheme. The question is how much.

Depends on how much the office itself is at risk. Everybody goes, but the bank and the MFI go differently. MFOs and a credit cooperative speculate with depositors' money, borrowing at 30% and re-borrowing at 300%, but with a very high percentage of default. As long as his percentage is acceptable, everyone pays everything. But, say, there is a general crisis and the final borrower has nothing to pay. Or the government decides to restrict the moneylenders. Or something else. Then the reseller of your money will most likely leave for a well-deserved rest, taking the rest of the cash register. As soon as the main activity stalls, then he decides that he has become a pyramid. Although before that he was not. And I didn't plan. He wanted to be honest. But he was set up, and now he is setting you up. Because his resource is greater than yours, and for what he does, we rarely get imprisoned.

Even more dangerous is the "investment company". There may be rare cases when it makes sense to invest in a fund, but they are rare. Of course, it is always important what kind of fund it is, but let us think, what is it all about - a "fund"? "I have a lot of money in my assets, and in the liability I have an obligation to return it." And usually you want to do something with the liability, so that it does not exist. This is the essence of any business. The question is not whether self-interest will triumph over morality (consider self-interest to prevail, it’s safer to think so), but whether something can be done technically with liabilities?

The more freedom of action the counterparty has, the worse you are.

Mutual funds and ETFs are a regulation that excludes the appropriation of the entire amount at once, although some percentage, in addition to the agreed commission, can be swept into the pocket by certain methods of "management". It won't even be immediately noticeable. An "investment company" with remote registration is simpler: why bite a grain when you can put money in a bag right away? And if you entrusted the passwords of your accounts to a private trader … Technically, you let the goat into the garden, and the safety of the garden is now a matter of his morality. If he assures that “only you can withdraw money from your account,” then this means that the goat is still young, inexperienced. If you wish, having only the password for the terminal, you can transfer all the money to yourself in one trading session. All seasoned goats and gardeners know this, but the conversation about traders is still ahead.

Let's summarize: what is important when choosing a counterparty, what to look at?

1. The nature of the business. For example, a giver at 100% can not help but be scared. From the English. scam - "scam", "scam", even if he is a saint.
2. Jurisdiction. Our cops are unlikely to go to the Virgin Islands. They don't like to catch financial swindlers here either, but you never know. Professional scammers choose a 100% guarantee.
3. Scale. The leading Russian broker can theoretically do anything too, but in 10 years he will collect more in the usual way than by running away with the cashier once. In addition, they will stop calling him at conferences and showing him on TV. You can trust him. In case you don’t know, the risk profile brokerage business is much more cautious than the banking one. The banker sometimes lends to the devil knows who, the broker - only on the security of those assets that he owns. To fly on this, you have to try hard.

In short, any intermediary between you and the assets is evil. Choose the smallest - only top banks and top brokers. No "international investment companies". In your personal account on the site it will be written that your money is invested in Apple shares, as in real life - no one knows. The larger the company, the harder and more unprofitable it is to run away with the cash register. Limit yourself to the top ten banks and brokers.

Alexander Silaev is an economist, philosopher, journalist and former teacher. Five years ago, he left university and devoted his time to stock exchanges, investments and trading.

In the book "Money Without Fools" Silaev shares the knowledge and experience that he himself received in practice. From it you will learn the main rule of investment, why you cannot believe everything that agents say, and how to distinguish experts in the field of finance from amateurs.