Me & My Money Series (Sunday Times)

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Quote:My take is the 'investors' are attracted by the zero downside due to the buy back guarantee (will in fact make a min. 1.5-1.7% due to the initial discount) and the potential upside if Gold Price should rise above 30% (they can sell the physical Gold elsewhere).

Quote:A lot of people(not sophisticated or investment savvy enough) will think in simple language terms guarantee means = “??”. So a lot of scams prey on this common people's thinking.

Exactly. A guarantee offered by a company without adequate financial strength to back up the contingent liabilities it has taken up is worthless. It is easy to make guarantees because companies do not need to put money upfront. It is like selling insurance policies. The financial risks to the entrepreneurs are limited. They can set up a limited-liability company, pump in a tiny amount as equity and this tiny amount is the most they will lose in the worst-case scenario. While the financial risks are low, the reputational risks are real. I can even see the pictures and background of the people behind this company. http://thegoldguarantee.com.sg/biography.html
If things don't work out, it will be a big shame.

When buying financial products, a person should at least understand how the other side makes its money. I went to the website http://thegoldguarantee.com.sg but not sure if it is my fault, I am not able to find enough information about the sort of deal the company is offering to its customers. Can someone point me to the link? Where is the information that shows he is selling gold bars at $87?

Just learnt one thing good about this forum. With the detective work done by the clever forummers here, if a financial product can survive their scrutiny, it has got to be quite good. Now, the public is served when they start googling about the product in question. It is hard to measure how much good you guys have done for the public and how much money you saved from potential victims.
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Trust yourself only with your money
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Wow, you buddies sure are quick to jump on this topic.

Anyhow, anyone remember Genneva Gold or The Gold Label? From this article, seems like The Gold Guarantee has the exact same modus operandi.

Golden fleece (article obtained here)

Two companies that offered gold investment schemes are currently under investigation by the authorities.

By Genevieve Cua

IN THE last few months, netizens and investors have puzzled over a number of so- called gold investment schemes that aim to pay you regular returns. Are they scams? Gold, after all, does not pay any income, so how are the firms able to pay out as much as 24 per cent per annum?

Two firms with such schemes have been put on the Monetary Authority of Singapore’s (MAS) Investor Alert list. The latest on the list is Genneva Pte Ltd.

Late last year, The Gold Label Pte Ltd was put on the list. The company has filed to wind up its operations, reportedly due to cash flow problems. MAS’ Investor Alert list reflects persons who are unregulated, and ‘may have been wrongly perceived as being licensed or authorised by MAS’.

There are similarities in The Gold Label and Genneva. They appear to be Malaysian in origin, or at least have Malaysian directors. Both were investigated by Bank Negara on suspicions of illegal deposit taking and money laundering.

Genneva Sdn Bhd was investigated in 2009. Three of its directors – who are also directors in the Singapore company – will stand trial in April in Kuala Lumpur on charges of alleged money laundering.

Bank Negara’s investigation of The Gold Label started last year, and is ongoing, based on information on Bank Negara’s website.
What exactly is the firms’ investment proposition? Information on The Gold Label isn’t widely available; its Singapore website has been taken down. The firms straddle a fine line between investment and a retail business.

Genneva, for example, has a police licence that enables it to sell second-hand jewellery, gold, and white gold. The fact that customers take home physical gold in the form of bars or coins suggests that the firm isn’t taking a deposit or acting as investment manager.

Here’s how the scheme appears to work: Customers buy gold from Genneva at a fairly substantial premium to the market of about 22 to 25 per cent. This is based on a comparison of prices quoted by Genneva of roughly $75 to $76.50 per gram against the price quoted by UOB and other retail gold dealers of roughly $61.

Genneva tells customers that it sells the gold to them at a so-called ‘discount’ of between 1.5 and 2 per cent. It extends an option to customers: it will buy back the gold after 30 to 36 days or after 90 days depending on the scheme, at the original full purchase price. Those who exercise this get to keep the ‘discount’ of 1.5 to 2 per cent.


Customers may rollover the purchase, and hence they could potentially pocket as much as 18 to 24 per cent a year, from an asset that actually doesn’t pay any yield.

How is this done? Genneva has declined to answer questions for now, citing the pending court case in Malaysia. It adds in an e-mail that it expects a ‘positive outcome’ from the court case.

There are a number of aspects that should cause scepticism. First, the firm illustrates its buyback option on its website in a rather disingenuous fashion. It says customers buy gold at a ‘discounted market price’.

But the truth is customers buy gold at a sizeable premium to the market. The firm also does not explain what it does with the premium that it pockets. Presumably commissions are paid to the sales people.

Its website says it has a ‘proprietary trading platform’ which enables it to ‘adopt an active hedging and leveraging strategy’ that makes the buy-back option possible.

On whether the scheme is Ponzi in nature, The firm’s Malaysian counterpart told a Malaysian paper in 2009 that it is ‘obvious’ that it is not a Ponzi scheme.

What is likely to transpire is that the firm takes the 22 to 25 per cent premium that it gets from customers’ purchases, and after paying off costs and commissions, it could buy and sell options on gold, through which it hedges its exposure.

As long as the gold price rises or is steady, it can continue, and even thrive, as it sources for gold at substantially lower prices on the open market. If gold however drops on a sustained basis, it could face a cash crunch if investors rush to sell back their gold in substantial numbers. This is because it is obligated to buy back the gold from clients at a high price.

Those who enter the scheme are likely to be enamoured of the so-called return, but they face two major risks – price and counterparty risk. As long as gold rises enough to cover their cost, they could sell their Genneva gold in the open market. Over the last year, gold has risen some 26 per cent, based on spot prices.

If gold falls substantially, however, the counterparty risk becomes a material one, as you can recover your cost only if Genneva stays solvent. Those who roll over their purchases must reckon that the potential return far outweighs the risk of loss. Genneva agents tell investors that the worst loss they may suffer is about 20 to 22 per cent, roughly the premium they have paid.

Effectively, Genneva has sold investors a put option along with gold, charging them a premium for it, and sweetening that by sharing some of that premium at the end of the contract period of a month or three months. As the put option writer, Genneva’s risk is potentially unlimited if it has not hedged its exposure.

Rollovers, by the way, incur price risk – that is, you re-purchase the gold at the price Genneva quotes you which is presumably pegged to the market price. If gold rises, as it has over the last year, you end up investing larger amounts.

So, who is Genneva? According to filings with Acra (Accounting and Corporate Regulatory Authority), it was registered as a business in 2008 dealing in gold bullion. It has an issued and paid-up capital of $500,000.

Three shareholders are Malaysian, and they are the same ones who will have to fight money laundering charges in Malaysian court. There is one Singapore shareholder. Attempts to contact him were unsuccessful as he was reportedly travelling or in meetings.
There are clearly more transparent ways to invest in gold, without dealing with a counterparty which could shutter its operations as The Gold Label did.

UOB offers a gold investment account, for instance, where you can hold physical gold and re-sell it to the bank. Those who need not buy physical gold but want a piece of its price action can get it through the SPDR Gold ETF. The latter is exchange listed and is easily traded through a broker.

gen@sph.com.sg
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Slightly OT, but I've noticed that whenever a particular "investment" is hot and popular, there will be many firms and companies jumping on the bandwagon to offer them as legit investments. The reason people jump in with both feet is not just because they are ignorant (though a large proportion of them obviously are), but also because of GREED. Just like in Sunshine Empire's case, everyone thought that they were the ones who could "take the money and run", leaving other Greater Fools behind. In the end, they were the ones who discovered who the Fools were.... Tongue
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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(16-01-2012, 10:15 AM)Musicwhiz Wrote: Slightly OT, but I've noticed that whenever a particular "investment" is hot and popular, there will be many firms and companies jumping on the bandwagon to offer them as legit investments. The reason people jump in with both feet is not just because they are ignorant (though a large proportion of them obviously are), but also because of GREED. Just like in Sunshine Empire's case, everyone thought that they were the ones who could "take the money and run", leaving other Greater Fools behind. In the end, they were the ones who discovered who the Fools were.... Tongue
HI MW,
When i invest in the stock market hoping to grow my nest egg, you can say it is due to "greed". But hey i am taking a risk; a risk that may even wipe out my capital. All is fair and square. But when someone or some company ask you to invest with them and then offer you a "Guarantee"; HA! HA! they are the ones laughing all the way to the bank and not you definitely. Always remember there is no such thing as guarantee in investment.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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(16-01-2012, 10:15 AM)Musicwhiz Wrote: Slightly OT, but I've noticed that whenever a particular "investment" is hot and popular, there will be many firms and companies jumping on the bandwagon to offer them as legit investments.

Really a lot of "Make hay while the sun shines".

There's a lot of psychology behind it actually. Stuff like:
- how most people think trends will go on forever (when most don't).
- spotlight fallacy (when newspaper headlines feature a certain investment's gains, that gets stuck in people's minds that it's THE ONLY good investment.)

I'm waiting for the day where I see 9 out of 10 of these type of firms selling Value Investing. That's the day I'd become a chartist.
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(16-01-2012, 02:11 PM)kazukirai Wrote: I'm waiting for the day where I see 9 out of 10 of these type of firms selling Value Investing. That's the day I'd become a chartist.

In fact, there are already some guys out there running "Value Investing" courses. Some of those which I've heard of:-

1) MIP = Millionaire Investor Program
2) Value Investment Seminar

Make what you will of them. Let's see if really 9 out of 10 people will end up being value investors! Haha.... Big Grin
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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(16-01-2012, 08:47 AM)hyom Wrote: Exactly. A guarantee offered by a company without adequate financial strength to back up the contingent liabilities it has taken up is worthless. It is easy to make guarantees because companies do not need to put money upfront. It is like selling insurance policies. The financial risks to the entrepreneurs are limited. They can set up a limited-liability company, pump in a tiny amount as equity and this tiny amount is the most they will lose in the worst-case scenario. While the financial risks are low, the reputational risks are real. I can even see the pictures and background of the people behind this company. http://thegoldguarantee.com.sg/biography.html
If things don't work out, it will be a big shame.

From that biography page, only 4 key staff and except for the CEO and Sales Director, I don't see any useful background info eg. Experience, Companies,... The names of companies started by the staff were not mentioned, I wonder why. Even for the Sales Director, I did a quick search of his previous company and am not impressed (selling photocopy papers and stationery). Lastly, the most important job, Who is managing the $80Mil (likely growing by the minute)? It appears to be the CEO who's managing all the "investments", Hedging,...etc. The rest are doing Sales (their Facebook page shows a total of 9 staff but same here, all in Sales, except for CEO and 1 Account/Admin Mgr).

Quote:When buying financial products, a person should at least understand how the other side makes its money. I went to the website http://thegoldguarantee.com.sg but not sure if it is my fault, I am not able to find enough information about the sort of deal the company is offering to its customers. Can someone point me to the link? Where is the information that shows he is selling gold bars at $87?
Close to the bottom right hand corner, next to the Facebook box,

Latest Gold Price
16 Jan 2012 - S$87/88 per gram
about 5 hours ago


kazukirai Wrote:Golden fleece (article obtained here)

Two companies that offered gold investment schemes are currently under investigation by the authorities.

By Genevieve Cua

Great article, tks! Anyone thinking of putting their money into this Gold Guarantee thingy better read this article first!

For me, it was a good learning experience. Haha.. was even reading up on Gold Hedging to see if what they are doing can be actually workable here

[Image: KnowingYourOptions1.gif]
Luck & Fortune Favours those who are Prepared & Decisive when Opportunity Knocks
------------ 知己知彼 ,百战不殆 ;不知彼 ,不知己 ,每战必殆 ------------
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(16-01-2012, 08:47 AM)hyom Wrote: Exactly. A guarantee offered by a company without adequate financial strength to back up the contingent liabilities it has taken up is worthless. It is easy to make guarantees because companies do not need to put money upfront.

Many people (including myself) have to learn the hard way, that a 'guarantee', is different from an 'assurance'.
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Quote:Close to the bottom right hand corner, next to the Facebook box,

Latest Gold Price
16 Jan 2012 - S$87/88 per gram
about 5 hours ago

Thanks, I am so blind Smile
Quote:From that biography page, only 4 key staff and except for the CEO and Sales Director, I don't see any useful background info eg. Experience, Companies,... The names of companies started by the staff were not mentioned, I wonder why. Even for the Sales Director, I did a quick search of his previous company and am not impressed (selling photocopy papers and stationery). Lastly, the most important job, Who is managing the $80Mil (likely growing by the minute)? It appears to be the CEO who's managing all the "investments", Hedging,...etc. The rest are doing Sales (their Facebook page shows a total of 9 staff but same here, all in Sales, except for CEO and 1 Account/Admin Mgr).

The biography actually makes me uncomfortable to select him as an investment manager for my money. I would like an investment manager to convince me with facts and numbers from his track record. The detailed breakdown is missing from his biography and his track record is not long enough to see a few business cycles. Even more importantly, I want to see how he performs in a bad year. If he outperforms in a bad year, it means he is a conservative risk-taker. This is good. Again, this part is missing from his biography. Statements (extracted from the biography) like "Song Teck is a born investor and a gift to his fellow investors.", "His farsightedness is incredible." followed by description of the incredible gains he made is not enough to assess an investment manager without talking about how he performed during bad years. However, this is a good strategy to attract money from the masses who tend to be greedy and are easily impressed with reported super-gains. But what happens when things do not turn out well? Just use the standard disclaimer in all financial products that nothing is guaranteed and everything comes with risk.

Quote:Many people (including myself) have to learn the hard way, that a 'guarantee', is different from an 'assurance'.
Sorry to hear that. I think there is no way anyone can avoid experiences of broken promises unless they trust no one.



------------------------------------
Trust yourself only with your money
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The English word "guarantee" is to me very funny. It is a word that has no meaning unless you understand under what terms or conditions the guarantee is effective. And when you bother to understand you will usually realise it is actually no guarantee. To me a real guarantee is like one to one exchange for your purchase if there is any manufacturing defects you found within 7 days. Or better still 2-3 weeks. i am willing to pay a little $extra for this assurance from a reputable company.
How nice if investment instruments have something like this type of guarantee. Dream on, my friend. Dream on.
So any investment instruments with the word "Guarantee", i will not even bother to read them. i will run away as far as possible.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply


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