Monday, December 6, 2010

Remember When I Said...

Remember when I said do not invest in Private Placements? Regular blog readers of mine will be educated by my Do Not Buy List. Private Placements are illiquid, high risk investments anyway, but the main problem with them is that most of the time, the people selling them are ripping people off.

Now I am not saying that the people behind this Private Placement are necessarily ripping people off, but I would rather let you decide. Read the following article for details:

http://www.investmentnews.com/article/20101203/FREE/101209962/-1/INDaily01&dailycount=1&issuedate=20101203

Apparently, this group was able to raise over $10,000,000 by cold calling people about this offer. What I want to know is who are these poor people who fall for this line of bull? Come on people! Here are the multiple red flags involved in this situation:

  1. This is a solicited investment. This means someone who has a financial interest in getting you to buy it is calling you cold. They do not know you and they do not have your best interests at heart.
  2. This is a Private Placement. Private Placements are highly illiquid and extremely risky. Did I say highly illiquid? This means that you put your money in for in most cases as long as a decade with no chance of getting your principal back before then. Who can stick money away for ten years today? Never mind the fact that you are never getting it back. 
  3. These type of investments appeal to your greed. The sales pitch is to make outlandish promises about returns and appeal to your sense of greed.
  4. You probably agreed to invest in the Private Placement without ever even reading the prospectus. (In this case, the promoter alleging left out some very pertinent details in the prospectus, so reading the prospectus would not have saved you.)
  5. I have never heard of even one Private Placement that was profitable. Not even one!
The moral of the story is Do Not Buy a Private Placement. Ever!