Buyer Beware

I just have to say a few things about the Bernard Madoff affair. You know the one, the one that bilked some real heavyweight money bags through a hedge fund scam. The depth and the breadth of this scheme is still becoming known, with no one really knowing just how much damage has been done (and to whom).

We know that a lot of banks felt this sting, all around the world. We know that high profile names like Steven Spielberg and Mort Zuckerman had charities invested Madoff's scheme. We also know there are countless others who do not have household names, who lost a bundle as well:

Nicola Horlick, the British fund manager known as Superwoman for juggling her high-flying City career with bringing up five children, turned her fire on US regulators. Her Bramdean Alternatives investment fund had put 9 per cent – about £10m – with Mr Madoff. She told BBC Radio: "This is the biggest financial scandal, probably in the history of the markets."

This just goes to show that having money does not equate ton having brains. Why would someone as financially savvy as this woman has been billed to be, fall for such a ruse? Better yet, if you have worth £90 million (or own something worth this much), why does a person risk 9% of it in any one thing and then have the audacity to blame U.S. regulators? If I had $90 million, I could live comfortably off the interest even in the lowest return investments. And I would.

Folks, I don't feel sorry for these people, not one bit. I know the guy was well-respected on Wall Street and seemed to know what he was talking about. I know he is the perpetrator here and these people committed no crimes in wanting to make money. But there's a reason there is an economic term called "risk capital". The key word here is risk, which (like money you loan to relatives) should never be more than someone can afford to lose.

Common Sense 101 teaches us an age-old principle - if something sounds to good to be true, it probably is. Another old adage is even plainer and easier to understand: Buyer Beware. This is Rule #1 and cannot be disregarded if one wants to make wise choices. Even with careful thought and consideration, one can be had. But with some measure of prudence, this can be avoided many times more, than not.