A recent article in the Washington Post “Children’s Charity Victim of Ponzi Scheme” caught my eye. Looking to protect its endowment in 2008’s difficult market the DC-based Hillcrest Children’s Center invested in what Garfield Taylor of Gibraltar Asset Management Group described as a “can’t lose” investment strategy. By mid 2009 the $8 million Hillcrest invested had evaporated in a Ponzi scheme severely compromising their ability to help orphans and families in need.
Stephen L. Cohen an SEC official notes in the piece that this sad story should serve as a reminder to investors. “There really isn’t any such thing as an investment that has zero risk with a high reward” Cohen said. I wrote an article in the wake of Bernie Madoff’s crimes that outlines steps investors should take to protect themselves. Briefly investors should choose to work with an independent Registered Investment Advisor who is bound by a fiduciary duty to clients and who uses an independent custodian. Also it’s crucial not to put all your eggs in one basket and to understand what you invest in.
Above all however question the impossible. When an investment manager claims to always beat the market be skeptical. Simply when evaluating potential investments remember the old adage: “If it sounds too good to be true it probably is.”
