Its been two years since the MMM erupted across headlines in Nigeria with their first crash. The massive scam punctured what little faith investors had in the markets, investment firms and regulators. Fraud rarely has a silver lining, but the least we can do is try to learn from other people’s mistakes. There were many many lessons to be learned from the atrocious MMM scam. Those who watch the massive scam unravel should take heed, and consider what lessons could be learned.
Here are my 3 things you should have learned from the scam:
1. Too good to be true?: By now, you should recognize this: Anything that sounds too good to be true probably is. Low risk, high gain outcomes are extremely low probability. Stop buying into the 50% ROI in two days, it’s just too impossible.
2. Instincts: Don’t be afraid to rely on your instincts if you are skeptical about an investment. If something seems amiss, walk away. Performance is improbably stable for equities? They give you a Wink Wink Nudge Nudge that something is borderline illegal ? WALK AWAY
3. Know What You Own: Do not invest in anything you do not understand: How does this make money? What makes this unique? What is the basis for this investment? What are the risks? If you cannot answer those questions, you should not be risking your capital.
I attended an investment seminar at the request of a friend who thought that what she was being offered sounded funky. After the presentation, I began to ask questions. The more questions I asked, the more agitated the investment promoter became. At one point, she tried to stop me by suggesting she take me aside, away from the group. I protested, arguing that perhaps I had questions that the others in attendance wouldn’t think of or were too scared or intimated to ask. The fact that she wanted to shut me down for asking what I thought were very basic questions about the company’s record and how our money would be invested was a huge red flag.