Too good to be true offers

I’ve encountered three too good to be true offers this week in some shape or form. I have personally seen one of them, have been told about one by a friend, and a third one by a reader here.

The easiest to identify among these was the one that my friend came up with. He is looking to buy a used car, and a popular way to do that in the US is to go to Craigslist and search for cars.

He came up with one that he really liked a lot and from the low price and good condition it was immediately clear to me that it is a scam of some sort.

I asked him to send an email but not give out his phone number or anything else. Within a matter of minutes, the other person responded saying that he was an Oceanographer and out at sea, and if my friend wired him the money, he will have the car shipped to him immediately.

It’s an obvious and old scam that Craigslist themselves warns everyone about.

The second one was one that I faced myself, and it went like this. I have subscribed to a website for some financial information and they sent out an email last Thursday saying that they have this stock pick that will definitely go upwards from Monday, and they will reveal this stock to their subscribers on Friday.

Now, this is not a paid subscription, I am a free subscriber and these people have never sent an email earlier so I was really surprised to see that and I thought this is ridiculous – you are sending me an email to tell me that you will send me an email?

Then the next day they did actually send the email and name of a penny stock with the promise of a quick buck. I ignored that as well.

Then on Saturday, they actually called to tell me about the stock pick and for me to make sure that I don’t miss the opportunity to buy the stock. I missed the call so they left a voice mail.

I then observed this stock on Monday and it went up by quite a bit, then again on Tuesday when they sent a reminder email.

My curiosity was really piqued by then and I’d be lying if I said I didn’t consider buying a little of it, but good sense prevailed and I left it at alone. Then yesterday the stock fell 6%, and today it fell by 17%!

I can see that this penny stock has still jumped more than 100% in the last 5 days, but I really don’t know if anyone has really benefited from this or if it just hits the circuit without allowing anyone to really buy into it, or even worse whether it will come down like a pack of cards in the days to come.

This is a curious situation and I’m happy to view this from the sidelines. It’s a too good to be true offer and it looks like a pump and dump situation where things end badly for the guy who owns the stock last, and I don’t want to be that guy.

I can’t think of how someone can have such concrete information of daily movement of stocks unless they are manipulating prices, and I want no part of such a risky and what appears to be shady business.

The third incident is of a reader leaving a comment on the suggest a topic page about companies that offer very high returns for your investment, and one in particular that offers a 36% annual return.

This is just way too high to be reasonable and common sense and even historical experience shows us that usually these schemes end badly. There is normally no easy way to prove them before hand and even when you do present proof like in Madoff’s case – where Mr. Markopolos sent detailed information to SEC at the beginning of the decade that Madoff was a fraud – no one took notice for a long time!

I think people fall victim to their greed and ignore the warning signs by taking comfort in numbers, or by looking at the credibility of the person who is attached with the scheme even when history tells us that only people who can muster a lot of credibility can run such frauds and are most typical of doing something like this in the first place.

After all, Madoff ran NASDAQ once, and if there are a large number of people who fall for something – then that means a large number of people lose money along with you, just that – it doesn’t protect you from any loss.

I’ve personally avoided every offer that looks too good to be true that I have ever come across, and I just wish and hope that everyone else is as skeptical about these type of offers as well and remembers that a fool and his money are soon parted.

This post was from the Suggest a Topic page.

23 thoughts on “Too good to be true offers”

  1. It is strange that even the most education and rational people fall in such scams. Realistic expectations and properly focussed due diligence are the most important requirements for any kind of investment success. It there is a shortcut to it, then why does the seller need to reveal it for an affordable sum of money to you? This arguement is known to all of us, but still even the most intelligent of us are not always rational. This could be the reason why such this still exist in this Information Age.

    1. Yeah, it’s definitely not related to education or being rational because everyone or most everyone is guilty or getting tempted. Since I felt this myself recently I can vouch for it.

      It’s like the promise of a quick buck turns of a few caution switches in our head.

  2. Filling in some background on Madoff :Ref:Investopedia
    Bernard Madoff scammed an estimated $50 billion from his investors over a 20-year period. With consistent returns of 1-1.5% per month for more than 10 years, it was hard for investors not to believe the lines used to sell Madoff’s hedge fund. The fund’s supposed strategy was to use a proprietary option collar strategy that was meant to minimize volatility. This was provided as the reason for the fund’s consistent returns.

    Why was nobody watching?While it’s easy to blame the Securities and Exchange Commission (SEC) for missing the signs and accusations, there is a long line of interested parties who also failed to clue in to Madoff’s scam.

    One lesson to be learned by this event is that due diligence means more than just dropping by for a visit or relying on the opinions of others. It’s a methodology that encompasses all aspects of an investment management organization, including investment policy, trading patterns and verification of investment returns. While there is no official handbook or checklist, a skilled due diligence team has the experience and know-how to complete the process.

  3. And i feel that you should have both a disclaimer and a warning reg.the posts which people put up on onemint that readers should do well to verify before investing in any of them. I understand that personally, you have repeated ad nauseam that you refrain from suggesting investments for anybody….

      1. What i meant was comments (not posts in the real sense of the term) which people can put up on the site e.g: while answering queries etc…

        1. Ok well there aren’t many of those nowadays and in any case I don’t think it is practical to add a disclaimer to every comment – there are now more than 10,000 comments on OneMint 🙂

              1. Maybe u shud highlight it a bit more !!! 🙂 Just saw that Venkat had drawn your attention to Gitansh’s post offering foreign minted gold coins….Akin to what i had told u !!! 🙂

  4. Thanks for sharing. We must remember that there are no free lunches in life. God save those who fell for these offers.
    Why do people fall for such offer? Is it greed or laziness?

    1. One thing that I often feel myself is that I look at some set of people and think that these people are part of an inner circle, or they know something that I don’t or some other feeling like that which is primarily rooted in the fact that the other person knows more than I do and hence may be able to deliver this promise that I can’t even get close to.

  5. Hi Manshu,
    Thanks for the post at my request. I am forwarding this to my husband am sure that better sense will prevail and he will decide against dipping into a too good to be true offer.
    You have really made it easy for me. Thanks once again.

    1. It is my pleasure Nargis – I hope you guys don’t lose any money in any shady investment. I’ll be curious to know what happens if you don’t mind. You can always email me if you don’t wish to leave a comment.

      1. Hi Manshu,
        He understood the kind of risk/foolishness involved.
        The money now goes to MFs.
        My next target is to convince him to join onemint – which seem easy now 🙂

        1. Aren’t you a persistent person now Nargis 🙂

          I’m delighted to hear about this, and comments like yours make writing truly worthwhile – I deeply appreciate the fact that you have left a comment on each and every post and followed up even now when you had no need to. Thank you so much!

          1. That’s the least I can and should do.
            Writing comments is effortless compared to your efforts on conceptualisation, research and finally finishing a post.

  6. The newsletter thingy might me the old-send-50-ppl-to-buy-this-stock-and-send-the-other-50 ppl-to-sell-this-stock scam. And continue that till one big sucker comes through 🙂 People still try out that scam and fall for it?

    Btw, I have another too-good-to-be-true offer for you. I offer to double your money in exactly 7.2 yrs. No, really. 7.2 yrs is all it takes. It’s called a fixed deposit/liquid plus fund 😉

    1. No it’s definitely not as simple as that because the stock has seen real movement just after they sent the note, and the volumes have picked up significantly also.

      So, it’s not a simple case of market will go up or down tomorrow. It’s more like pinpointing one stock in a universe of thousands and then have it get tremendous volumes and movement in the ensuing week. It’s a little more involved than that scheme, and I think even that is just theoretical and is not quite practical at all.

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