Caveat Emptor: If An Investment or Opportunity Appears Too Good To Be True, Beware!

If you are interested in business / investments, the #1 lesson to learn is that, if someone presents an opportunity that seems too good to be true, walk away, or at least get your guard up. If it is so good, why are they sharing it with you?

Here is an example: Yesterday, I got an email talking about the "world's best investment" - better than stocks, bonds, real estate, etc. The guy who sent it provided a link to a video.

So, I watched the video. He followed a predictable formula:

1. Selectively chose examples to criticize normal investments - in this case 2008, when stocks, real estate, bonds, and even TIPs (inflation protected treasuries) were all down. He also mentioned how the returns for stock indexes were negative from 2000-2009.

2. He then described his "perfect investment" - in this case, "being your own bank" by buying used mobile houses at wholesale, and re-selling them at retail with financing. Ex: buy mobile home for $7,000 and re-sell for $10,900 with a 72 month lease. So you would receive about $117 per month for 6 years. His rationale for this working is that banks don't want to finance used mobile homes.

He said that these deals can make a double digit return in any economic environment, and mobile homes are easier to sell then regular homes. They are considered to be like cars (sold through "pink slips") rather than real estate.

3. Finally, he made his pitch: his company would handle everything - locate a mobile home for you, negotiate with a trailer park, advertise the mobile home for sale, screen buyers, etc.

I quit watching at this point.

Think about it - if his company is set up to do the drudgery work, and buying/re-selling mobile homes is the "perfect investment", why would he go to all the trouble of emailing people about it and letting them make the returns, while he just collects a fee?

Clearly, he must think servicing mobile home investors has a better risk/reward than actually investing.

It's like the California Gold Rush - people rushed out there to discover gold and most failed. But Levi Strauss got rich selling jeans to them.

Does this mean that buying / re-selling mobile homes is a scam? Not necessarily. Someone might be able to generate a good return, but I doubt if it is that easy.

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How To Start Building a Stock Portfolio with $5,000

The Intelligent Speculator has a good post on building a stock portfolio with $5000.

He makes several good points:

1. The key is to avoid procrastination and get started.

2. Use a discount broker that charges $10 or less per trade.

3. Interestingly, he offers the same advice I offered in Stock Trading Riches - to keep commission costs down, own 1 stock per $2000.

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Tesla Motors, Inc (TSLA) IPO : Good Buy?

I've been asked by several people about what I think about the Tesla Motors IPO (TSLA) yesterday. It was offered at $17 and closed on $24 yesterday. It was at $28 this morning.

What I find interesting about the company is that the CEO founded PayPal, and it is the first U.S. auto manufacturer to go public since Ford in the 1950's.

I read about the IPO the day before it happened. I thought about whether it is worth buying and decided against it.

1. The company has lost money for years.

2. They currently make only 1 car which costs over $100k.

3. They have only sold about 1,000 of them.

4. The IPO and price are assuming that they sell a lot of the new car they are developing, which might cost between $35-45k.

5. The new car will have competition from the Nisson Leaf and Chevy Volt.

So I concluded it's too much risk relative to the possible reward.

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Tax Credits For House Sales Made The Markets More Volatile

Today, there was a report that home sales dropped 33% after the tax credits ran out.

This article on the tax credit's effects on home sales argues that the credits did not create more sales - it just simply affected their timing, thus causing more volatility in the market place.

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How Trying to Save $15 Cost A Fishing Crew $1 Million

It looked like a fishing boat called The Citation had won the "Big Rock Blue Marlin Tournament", off the coast of North Carolina, with their record 883 pound catch.  However, it turned out that one of the crew members didn't have a $15 fishing license, which is a violation of contest rules. The boat was disqualified, and the second place boat The Carnivore, with its 528.3 pound catch, ended up getting first prize and netting a cool $999,453.

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Canada's Economy is the Envy of the World

According to this article on Yahoo, Canada's economy is strong and leaders of other countries want to learn from it. Here are some highlights from the article: * Canada's economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered. * Finance Minister Jim Flaherty recalled visiting China in 2007 and hearing suggestions "that the Canadian banks were perhaps boring and too risk-adverse. And when I was there two weeks ago some of my same counterparts were saying to me, 'You have a very solid, stable banking system in Canada,' and emphasizing that. There wasn't anything about being sufficiently risk-oriented." * As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their U.S. or European peers.  * In Canada's concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally. * There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans. * Canada  had 12 straight years of budget surpluses.  When recession struck, they pumped stimulus money into the economy, with the result that Canada again has a large deficit. But it is recovering from the recession faster than others, and although its deficit is currently at a record high, the International Monetary Fund expects Canada to be the only one of the seven major industrialized democracies to return to surplus by 2015.

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Watson Trivia Game

I just played the "Dear Watson" trivia game, and I crushed it 41-12.

http://www.nytimes.com/interactive/2010/06/16/magazine/watson-trivia-game.html

I don't know if it will ever be able to completely rival human intelligence - but it will be better than us when it comes to retrieving knowledge.

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