Delivering 20 percent every year for 30 years would have been too hard to believe (and pay out) while 5 percent would have sent most people searching for more elsewhere. Returning 10 to 12 percent year after year was a stroke of genius: it was within the realm of possibility, if just barely.
The point is that the mistakes his investors made are ones that anyone could make. While the stories of so much money lost are tragic, none had to occur. Much of this loss could have been prevented if people had questioned what they were doing.
- THE 10 PERCENT RULE: ... The most basic book on investing will tell you never to put more than 5 or 10 percent into any one investment, particularly one meant to preserve wealth.
- CONSISTENCY IS BAD: ... There are too many variables that inhibit being great on a regular basis. ... Good investment advisers plan for a modest return over the years. They know that one year they will get you 11 percent, the next year 6 percent and the year after that lose you 2 percent — so count on 5 percent. Mr. Madoff’s returns were too good to be true, but no one wanted to believe that.
- THE GRAND FALLOON: ... just because someone is a good golfer does not mean he should be trusted to invest your money. Private bankers are forever telling their clients not to try to get into someone’s hedge fund just because you enjoyed their conversation on the course — or, worse, want to play with them again. Like taking care of your health, picking an investment adviser should be done with the utmost rigor.
- ‘DON’T ASK, DON’T TELL’: ... But nothing in which you are putting millions of dollars is so wonderful that it cannot withstand scrutiny.
- PUT MONEY IN BUCKETS: ... follow__ the popular wisdom of private bank investment strategists: divide your money into buckets to insure the money you need to live on will always be safe.
Comment: Madoff ought to be in jail .. not in house arrest. "THE GRAND FALLOON Kurt Vonnegut coined this phrase in “Cat’s Cradle,” and never did it have a more devastating application than in the Madoff scheme. In Vonnegut’s world, a grand falloon was a false association mistaken for friendship — two people from the same town, same university, same company meet somewhere and believe that coincidental connection has significant meaning."
Don't look to me as any kind of investment guru because I am not. I have made some money and lost some money. My rules are: 1.) Consistent investing; 2.) Diversity (Mutual funds, EFTS, savings (CD's), some coins); 3.) Asking tough questions and looking for full accountability.