BERNARD MADOFF’s GRAND PONZI SCHEME

We’ve heard a lot about Ponzi schemes in the past few years with the granddaddy of all,  Bernard Madoff bilking so many innocent and trusting investors out of so much money.  And Madoff  was a highly trusted individual having served as non-executive chairman of the NASDAQ stock market.

 In March 2009, Madoff pleaded guilty to 11 federal crimes and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1980s, and that the investment operation may never have been legitimate.  The amount missing from client accounts, including fabricated gains, was almost $65 billion. The court-appointed trustee estimated actual losses to investors of $18 billion. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.

 WHAT IS A PONZI SCHEME?

 Ponzi schemes are a type of illegal pyramid scheme, named for Charles Ponzi, who duped thousands of New England residents. In the year 1920, Ponzi offered 50% profits every 45 days. He collected $9.8 million dollars from 10,550 people and paid out $7.8 million in just 8 months.

This was a kind of swindle, also called a “bubble” and has existed for hundreds of years. In reality, it is not an “investment” as people are led to believe. Money is simply being transferred from new investors to earlier investors. It is a fraud in which the “investors” are promised extremely high returns over a very short period of time.

This short payment time and high rate of return soon attracts large numbers of people. Initial “investors” make a lot of money, but their profits are not a result of the success of a business. Their profits actually come from the contributions of those people who later join, thinking they are participating in a legal business investment.

Ponzi schemes typically claim that their moneymaking abilities are because of their elaborate, inventive investments or business process. Because of word-of-mouth advertising about this great “opportunity,” new depositors are quick to jump on board. Usually a Ponzi scheme will not last very long. It eventually collapses since it was based on something that either never existed, or was grossly overvalued.

A major attraction of a Ponzi scheme is that it appears to be a high paying investment opportunity. As a passive type of program, a person does not need to work in order to generate great profits. The impression that people are given is that they need only to put their money into it and wait for the money to come rolling in!

Unfortunately, only a few “early birds” actually make money, which they actually receive by fraud, while everyone else loses most of or maybe their entire investment!

RECENT COMPANY INVEST STOCK SELECTIONS

The stock market has been moving sideways with no real definitive direction.  Just when we get a 2-day mild selloff, the market turns and rallies today.  The market could correct more between now and the end of the year, however, the highest probability says that next week will be a typical low-volume, holiday week  and most likely will finish green.  More often than not, Christmas week features a “Santa” rally.  I said a week ago I thought the S&P would finish the year above $1,250, and maybe even as high as $1,270 to $1,280.  I stand by that comment.

 With that in mind, here are the most recent Company Invest selections:

 EXM:  Sold off  heavily the last 3 days.  But don’t worry.  You should have a stop loss order in below the November 30 low of  $5.45.  This could be a wonderful buying opportunity if the $5.45 low is not taken out.

 TAN:  Even though TAN has had a few selling days here, this is setting up to be a nice mid to longer term play.  It would have to take out the November 30^th low of $6.83 to fail and that doesn’t seem likely right now. This looks like a nice “W” formation setting up right below the 200 day moving average.  If TAN can get above $7.79, shorts will cover and institutional investors will buy in and it will be on its way to $9.

 LOW:  This has been an amazing trade.  We suggested taking ½ your position off some time ago.  Don’t add to your position here.  Likely LOW will sell off some more due to simple profit taking.  Look for more picks soon.  We strive on proving free analysis of the best stocks to buy at Company Invest, but we only make suggestions when the chart setups scream BUY, BUY, BUY!