Beats the Heck Out of Me Who the Fool Is

Kiplinger's Personal Finance Magazine, Dec, 1998 by William Giese

I search America Online for investment ideas and find this: Just recently entered into an agreement with an Investment Banker, who is paying me 24% annual return while being 100% secured. I thought I would throw this onto the board to see if anyone else here is involved in a similar program. E-mail me if you are. If you would like to get involved, e-mail me and I will give the contact info for this Investment Banker. Happy investing.

Now, a smart man like myself would be idiot not to take a second look at a secured investment with a 24% annual return. Stocks hardly ever do that well--at least the stocks I own.

The 24% solution appeared on one of AOL's Motley Fool financial message boards. Motley Fool takes no responsibility for message content, by the way. "If you don't accept this responsibility for yourself," it explains, "you should not use the Motley Fool." For luck, I open two fortune cookies from the box I always keep Close at hand and message back: "Sure, I'd like to learn a little more about this investing idea. After all, `now is the time to try something new.' Furthermore, `ignorance never settles a question.'"

My e-mail pal replies: "I haven't had a problem yet. All payments have been on time, and the pro invest a substantial amount into the program."

So I talk with the Investment Banker, who says he buys computers for $1,000, installs some basic financial software, then leases them to home businesses at $2,100 plus interest for 30 months. Details are proprietary, he explains, because "anyone with half a brain and time on their hands could do this."

But the Investment Banker sends me a few more particulars: An investment of $50,000, for example, would be returned in 30 monthly lease installments of $2,232.50, for a total payout of $66,975. He also sends me what appears to be an old checking-account statement.

I can't get my calculator to duplicate the 24% result. This happens to me a lot and should not be held against the Investment Banker. He promises to send me a "factored amortization chart" to help. But I never receive the chart and take the 24% on faith.

But what if all my home-office clients are deadbeats? "We repossess the equipment, refurbish it and resell it," he explains. The investment is secured because I'd get a bundle of computer leases equal to 115% of the promised monthly payout. I never quite understand where the money comes from to bankroll the extra 15%. "I'm taking your money and essentially doubling it," he finally explains, a little testily, "so I can easily afford to cover your note."

Perplexed, I grab another fortune cookie. "Never act on impulse," it says, so I redouble my due diligence. I try to talk to other investors, even sending my telephone number to my original e-mail pal and inviting him to call collect. No luck. This program is just getting off the ground, explains the Investment Banker, and is not quite operational.

How much of each total lease payment does the Investment Banker get? Difficult to say, he explains. Perhaps my payout would amount to 30%, with 50% going to him and the remaining 20% set aside for expenses. The Investment Banker also asks my help with buying a small ad in the International Herald Tribune. Unlike Motley Fool, the Trib does take responsibility for what it publishes and requires bona fides before running ads. Would I fax some sort of testimonial for this purpose, asks the Investment Banker?

One of those really smart investors (Warren Buffett, maybe) likes to say that there's a fool in every financial deal, and your job is to identify the fool. If you can't find the fool in your deal, then you're it.

Let's see. Motley Fool gets rich providing a financial forum while declining responsibility for the forum's content--not bad for Motley Fool. The Investment Banker uses other people's money to structure leases and keeps up to 70% of lease payments--not bad for him, either. My e-mail pal is not talking.

Gosh, who's left?