Before the Second World War, the French sensed an attack from the Germans after their huge loss in the First War, so they constructed the Maginot line – a series of expensive super-forts along their eastern border with Germany. They reckoned the forts were so strong that they would prevent any future German army from attacking. This looked quite sensible until Adolf Hitler blasted from Belgium, which is north of France, and Paris was taken in weeks.
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This is a failed attempt to assess risk and like most guys I know, they literarily fail in understanding how to assess investment risk. Like the French, that constructed the Maginot line which was an expensive but ill-located and ultimately unsuccessful investment in security, these guys keep their monies in high risk investments without knowing it. Because of their loss in previous investments, they become paranoid about every investment and make wrong choices in their investment pick.
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Now, I will be a bit frank with you in this write-up: There is nothing like a foolproof safe investment. It does not exist on this earth and it never will. The day you were born, you have entered the world of risk not to talk of human controlled system. It is important you know this when talking about investing in one thing or the other. It is also important to note that Jesus Christ frowns at those who do not invest what they have.
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In the parable of the talent, the Master was angry with the guy with the one talent for burying his talent; he however admonished the guy to have put it in the bank for interest. Now, this is where the problem lies; most people think putting your money in the bank is low risk especially where you gain interest from it. The Master in the parable was only comparing the risk level of doing business and placing it in the bank; the bank is however less risky than business but depositing your money in the bank is very risky.
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Once you deposit your money in your savings account, the money is no longer yours; it becomes the property and liability of the bank and you become a creditor. When the bank becomes insolvent, the bank has no right to pay you back your money. Well, some government comes in to protect you by giving you a tiny fraction of your money. If you have 50 million naira in an insolvent bank account, Nigerian government gives you 50 thousand naira to compensate your loss after like 2 years. The Nigerian government is actually doing you a favor so be thankful.
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The bank is not as safe as you think; there is also the issue of inflation. Let’s take the case of someone that saved 5 million naira in his account when dollars was 118 naira and wants to import anything now. This would definitely be a huge loss for the person. What about the executive that has been saving his/her money for a vacation and he/she realize that the dollar rate has spoiled his/her chances for the shopping he/she wanted to do abroad.
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I gave two solutions to this rising dollar in my earlier write-up; earn money in dollars and convert your money to an easily liquefiable universal asset. I sent mails to the guys that showed interest in the 250 USD capital investments and I introduced GOLD as an easily liquefiable universal asset in my write-up; “let’s talk GOLDâ€. However, I failed to share the low risk involved in investing in GOLD as oppose other kinds of investment.
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First, let me take you through Risk Assessment 101. If you plan to make 1 thousand naira and two investment plans were placed before you; 1) you invest 100 naira and get 5 per cent of your investment or 2) you invest 800 naira and get 25 per cent of your investment. This is very simple because I know most will go for option (2). Let’s take another scenario with this 1000 naira in mind; 1) you invest 500 naira and get 10 per cent in an investment you are familiar with or 2) you invest 500 naira and get 100 per cent return of your investment in an investment you are not familiar with. I am sure there will be diverse opinion on this.
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Remember, like I said; there is no foolproof safe investment; it all depends on how familiar you are to the investment. Familiarity lessens the risk of the investment not the investment on its own; a successful business man would tell you it is less risky to do business than to place your money in stocks while a white collar executive would disagree with the business man’s assertion. So this means it is a “perspective†issue not an “investment†issue.
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This is why I am interested in teaching ten guys who are very smart and ambitious the secrets of investing in bullion gold. I would be teaching them how they can buy and sell bullion gold via the internet with as little as 50 USD. After buying this gold, they would be kept in offshore accounts that are reputed to be safe. This is however better than bank deposit because the gold or the equivalent value is given to you even if the company is insolvent. There is another Maginot line that people promote; they believe that investments are safer in their country of origin.
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Investments are far safer in offshore accounts like Switzerland than your country of origin. The US government did something very funny in 1933; they simply passed a law that made gold useless to its owners by making possession of gold or gold certificate of more than 100 USD worth illegal. Your government can wake up any day and propound rules that can make you poor or rich depends on the divide you are.
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I will be discussing more on the advantage of converting your hard earned savings into gold in my nest article but in the main time, 10 lucky guys would be trained in the secrets of gold trade. I have got a lot of interest but my policy is first pay, first served. To know details of the seminar, read my article; “let’s talk GOLD†or click HERE. You can also show interest in the training by clicking HERE.  Â
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N/B: FOR THOSE WHO ARE NOT AWARE, YOU MAY LISTEN TO MY PODCASTS BY CLICKING HEREÂ Â Â Â Â Â Â Â Â
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6 comments
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March 27, 2009 at 10:47 am (UTC 1)
@ ifeoma
nice analogy!
@ dipo
thanks for the info!
March 26, 2009 at 3:37 pm (UTC 1)
Ifeoma, na wa ooooooooooooooooooooooooooooooooo. We need to retreat to advance. We need prayers
March 26, 2009 at 1:48 am (UTC 1)
@ Moha1, Ogu and Ifeoma Melie
Thanx for your comments…..
March 25, 2009 at 12:39 pm (UTC 1)
Dear Dipo,
Thank you for your article. It is an interesting read. I will agree with for now that indeed Gold seems to be a safer investment but lets look at it more closely what really is safe? There is a story of how the world got to recession.
It goes thus:
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
The net asset of the country now = 3 dollars.
Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
A has a loan to C of 1 dollar, so his net asset is 1 dollar.
B sold his land and got 2 dollars, so his net asset is 2 dollars.
C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
Thus, the net asset of the country = 4 dollars.
A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C.
As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.
B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by Borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
C loaned 2 dollars to B, so his net asset is 2 dollars.
The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
Everybody has made money and everybody felt happy and prosperous.
One day an evil wind blew, and an evil thought came to C’s mind. “Hey,
what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.”
A also thought the same way.
Nobody wanted to buy land anymore.
So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
C has a loan of 2 dollars to B. But it is a bad debt. Although his net
asset is still 2 dollars, his Heart is palpitating.
The net asset of the country = 3 dollars again.
So, who has stolen the 3 dollars from the country?
Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
B had no choice but to declare bankruptcy. C has to relinquish his 2
dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
A owns the 2 coins, his net asset is 2 dollars.
B is bankrupt, his net asset is 0 dollar. (he lost everything) C got no choice but end up with a land worth only 1 dollar The net asset of the country = 3 dollars.
End of the story… but…
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting…
When a bubble is building up, the debt of individuals to one another in a country is also building up.
This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be Calculated using the island’s own currency. Hence, there is no net loss.
An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor Lose. But he will see the value of his money or land go up and down like a see saw.
When the bubble was in the growing phase, everybody made money.
If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A) and take part in the game. But you must know when you should change everything back to cash.
As in the case of land, the above phenomenon applies to stocks as well.
The actual worth of land or stocks depend largely on psychology.
…….who is responsible for this? Is it me or you? Or the policymakers or the regulator or the false banking system or the government or all of us?
The truth is that the value of anything is what we think it is worth. Gold is worth what we think it is worth today tomorrow there could be a change. The most important to note is that while playing this game of investment you must know when to get out and convert you investments back to cash or the present medium for carrying out trade.
March 25, 2009 at 11:17 am (UTC 1)
“You will always get everything in life that you want if you will help enugh other people get what they want” Zig Ziglar.
March 25, 2009 at 7:27 am (UTC 1)
Hi Dipo,
I really appreciate what you are doing with respect to sharing ideas with your community. You are good ! I pray i will able to participate in these meetings very soon. Cheers