One of the most commonly spewed out “investment adages” is “high risk, high return”. This saying is meant to imply that in order to achieve high returns we must take high risks. My story would seemingly exemplify the above adage. Some people might say that I was trying to get 45% returns, therefore I must have taken high risks. That is why I should not be surprised that I lost my money.
However, that “lesson” could not be further from reality. In fact, what I learnt was that risk comes from not knowing what you are doing. It has nothing to do with how high the potential returns were. Just think about driving a car. Consider an elderly lady who has not driven a vehicle her whole life. If she were to start driving on the busy roads of KL today, one would consider that behavior risky. That is because she has never learnt how to do it.
But in the hands of an educated driver, driving a car does not seem all that risky. That is not to say that there are totally no risks, but having the skills and experience to drive a car significantly reduces the risks of driving in KL. To take this example a little further, consider an F1 driver. He would have no trouble driving a car at 300 km per hour. For most of us, even with years of driving experience, we would probably start shaking if we were to drive at 200 km per hour.
The same goes for investing. When I invested in this Ponzi business, I had almost zero knowledge about what a good investment comprises. On top of that, I jumped with excitement at the phrase: “guaranteed returns”. This was a fact that the scammers exploited. The worst combination anyone with money can have is ignorance and greed. You can only be conned when you want something for nothing. And that was exactly what happened to me. I was ignorant and greedy.
The fact that the investment promised high returns had nothing to do with risk. Just to test out that hypothesis, imagine if that same exact investment were to promise 3% returns per year instead. It would still be just as risky because the exact same pyramid or Ponzi structure still existed. They would still need to get new investor money to pay old investors, albeit to a lesser extent.
With practice and knowledge, one can become like an F1 driver in investing. You can achieve high returns without taking unnecessarily high risks, just like a well-practiced F1 driver driving at 300 km per hour. In fact, it is BECAUSE of low risk that you will be able to achieve high returns!
This is precisely where I now hunt for my investment opportunities.