| The largest (Madoff) Ponzi scheme |
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| Written by Wilfred Ling | ||||||
| Tuesday, 16 December 2008 | ||||||
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It looks like this qualifies to set the world record in being the world's largest ponzi scheme! At this point, everybody would have read this from the newspaper and Internet. Various institutions have been affected. For private investors, I know of a hedge fund registered in Singapore for Accredited Investors was managed by Madoff as the sub-adviser. Obviously this is a very bad news for these private investors. However, I was told that no Singaporeans have bought this fund. Thank goodness. But how can a person avoid investing into a scam or a lemon? I would say that this is impossible. It is impossible to completely avoid the risk in investing in a lemon. Even if one would to put money in a fixed deposit – if it was not for the government's guarantee - that so called “risk free” asset could also be in jeopardy. Even with the government's guarantee, that cash in the bank is being eroded everyday due to inflation. So it is either a slow death or a quick death. Of course I think given the choice – a slow death is preferred! Seriously, if one cannot avoid the risk of investing in a lemon, one could do something to reduce that probability. It is also possible to reduce the damage if the lemon is found to be part of one's investment. The age old technique is called diversification. As the saying goes, do not put all eggs into one basket. Just make sure you put your eggs into different baskets. Some people even diversify their financial advisers. This is viable provided each advisers know what other advisers are doing because they could be recommending the same basket. Just make sure each advisers know what the others are doing otherwise adviser diversification is as good as no diversification.
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