Let me just start by stating that this article is not financial advice in any way or form, nor does it purport to be. The views expressed herein are mine alone and should not be interpreted as an invitation to invest (or not invest) with Menzgold. Now that we have gotten that out of the way, lets get down to it…
The pragmatist investor vs the idealist investor
I have never considered myself to be an idealist, I have always been a realist; or a pragmatist if you will. I believe that when financial investments are concerned, feelings, emotions and petty sentiment should be left out of the equation.
I try to be as immune to propaganda as much as possible and as a result, I do not have to believe in a company’s central message to invest money in it. I don’t even have to believe in its legitimacy to make money off it.
There are many Ghanaians across the length and breadth of the country who believe that Menzgold is a legitimate business with revolutionary business models that allow it to pay out 10% interest (or ‘dividends’ as they call it) on investments at the end of every month….. I am not among them. I do not believe that Menzgold’s business model is legitimate or sustainable over the long-term.
I don’t know how Menzgold makes its money and I honestly do not care. My only concern is how I can take advantage of the company’s beyond-realistic high returns to make money. If you are on the same page as me, then you should continue reading.
How Menzgold works
The company asks you to buy gold from its partner company (Brew Marketing consult) in multiples of 2,000 cedis, store the gold with them (Menzgold) and receive a dividend of 10% at the end of every month. So, in a year, you would be making a cool 120% return on investment.
If you decide to go for the compounding options (where you don’t receive your interest at the end of each month but rather re-invest it), you would be making 313.84% returns after a year.
Just for comparison; the current Treasury bill rate in the country is 13%. The best-performing equity fund in the country has rewarded investors with an 18% return on investment (Yield to date) and the best-performing money market Fund in the country has an annual yield of 26%.
To say Menzgold’s 10% interest rate is high, would be the understatement of the century.
The big gamble
Since I believe Menzgold’s business model is unsustainable over the long them, that means I have to accept the possibility that the company could go bust at any time in the foreseeable future and anyone who still has funds invested in it when that day comes will lose their money. What I am suggesting is an investment outlook that reduces your risk by limiting to it 10 months.
Here’s what you do; invest in Menzgold, entitling you to 10% interest per month… and then all you have to do is patiently wait for 10 months to pass by. You see, with 10% monthly returns, you only need Menzgold to remain solvent for 10 months after you invest in order to completely re-coup your principal. You only truly lose money if the company goes under within the first 10 months.
Your gamble becomes less-risky with each passing month. If for instance, Menzgold goes bust 8 months after you join, you will only be losing 20% of your initial capital. It is important not to fall into the trap of “rolling-over” your interest, since that just brings your risk back to 100%. Your purpose should be to make quick money out of this thing and get out; you don’t want to be around when it all comes crashing down. The biggest mistake you can make is to keep adding your profits to the initially invested amount with the purpose of increasing your monthly return. I will explain why this is a bad idea shortly.
A lesson to be learnt from Isaac Newton
Back in the 18th century, many British investors got caught up in a government-sponsored pyramid scheme, The South Sea Company. The company was granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt, causing its share price to shoot up phenomenally. Investors in the company enjoyed beyond-normal profits and saw their wealth grow on the stock market.
Sir Isaac Newton, Britain’s most celebrated scientist, and perhaps one of the greatest minds of our time, saw that the company’s growth was unrealistic and unsustainable, ascertained that it was a pyramid scheme and plotted to get rich by gambling on it.
Newton invested in the company in its early stages and a few months later, sold all his stock and walked away with a handsome profit. However, the company didn’t collapse after he sold his stock; on the contrary, it only grew larger and rewarded its investors more. For several months, Newton watched on as the company’s share price kept rising on the stock market, rewarding investors who were still invested in it.
Newton couldn’t stand it any longer and decided to re-invest in the company. This time, he invested all his savings. A few months later, the company collapsed and Newton lost all his money. He lost a lotal of £20,000 at the time (Equivalent to about £4m today) prompting him to come up with the quote “I can calculate the movement of stars, but not the madness of men”.
The image below shows the points at which the company was formed, where Newton initially invested, where he cashed out, where he re-invested and when the company collapsed:
Similarly, the biggest threat to anyone who chooses to invest with Menzgold is his own greed. Greed tells you to keep reinvesting your profits instead of playing it safe and taking your profits. For instance, a person who invests GHc 30,000 and enjoys GHc 3,000 dividend per month could get greedy along the way and decide to up his ante to GHc 60,000, since his monthly interest would also increase to GHc 6,000.
This could prove fatal, because the moment you keep putting your profits back into the business, you are increasing the time it will take for you to break-even. Your money in Menzgold is completely hypothetical and will no longer exist if the company collapses. Until you have that money in your hand, it’s not really yours. Menzgold may survive the rest of this year, it may survive the next 5 years, it may even stay solvent for the next 30 year… but if and when it eventually comes tumbling down, there is going to a reckoning … and you don’t want to be caught off guard when it happens.