| Protect your capital |
| Tuesday, March 06, 2007 |
Dear Editor,
A day does not pass without me hearing, and more often than not, engaging in, some sort of discussion about David Smith and Olint, and to a lesser extent Cash Plus, the investment vehicles purportedly generating returns on investment of approximately 10 per cent per month. It seems as though everyone is speculating about all things Olint: when will the company begin taking new clients? Why won’t the government leave David Smith and his firm alone? How much money do they have under management? What was last month’s return on investment? Cash Plus places a close second in this “investor” hysteria.
I use the term investor very loosely. The Olint/CashPlus debacle underscores the lack of sophistication of the Jamaican investor. A little over a decade removed from the financial crisis of the mid-1990s, one would imagine that Jamaicans would have grown moderately savvier in our investment decisions, if for no other reason than to avoid once again losing our pants.
This is not the case, however. Little, if ever, have I heard the right questions being asked by investors with regard to the two entities: what is the degree of risk involved? Are these firms licensed by the relevant agencies, and if not, do they have legitimate business justifications for not being licensed? In what exactly are they investing?
Have they provided any detailed prospectus? Most important, can I as a potential investor bear the degree of risk to which I’m being exposed?
If a firm claims to be in the business of foreign currency trading, it would be wise for an investor or potential investor to demand details of that firm’s trading practices. What are their daily trading results? How many pips are being earned and on what currency pairs? What are the firm’s money management and risk allocation principles?
Any trader will tell you that these details are readily accessible from a trader’s brokerage house. Similarly, if another entity offers a 10 per cent return on its direct investments, the prudent investor would seek to find out what exactly these investments are. What are the periodic revenues and expenses of the company? What is the state of the company’s balance sheet in general? Is the company’s growth so tremendous that it can sustain a 10 per cent return on investment to its investors?
Successful investors will tell you that if you are not asking these questions, then you’re not taking the basic steps to preserve your capital. And preservation of capital is arguably the most important element of successful investing.
Remember, being motivated by greed and the desire to get rich (or richer) quick can be, and is often financially disastrous.
I’ll continue to engage in discussions about compounding interest and percentage returns. In fact, I’ll probably be the first in line to invest “a little something” with one or both of the two firms.
Whatever the outcome of my decision, however, I will be comforted by the fact that I have asked the right questions and will risk only what I can afford to lose.
Din Duggan
Atlanta, GA
USA
dkduggan@hotmail.com
