JULY 14 — It’s easy to invest. Pick a stock, or unit trust, or buy a property. But it’s not as easy to invest in something that really does give you returns.

Take the YSLM scheme that made headlines recently. According to the Ministry of Domestic Trade, Cooperatives and Consumerism, it has fleeced roughly RM300 million from unsuspecting Malaysians so far. Those who trusted the scheme’s promise of easy money for relatively low outlay — just RM300 — were burned. 

Turns out it was just another scam. So how do we avoid these things? Here are some questions to ask — using YSLM as a simple example — before you cough up the cash:

Who are these people anyway?

So someone comes up to you and offers you an investment opportunity. But who is that person and the people running the investment scheme? 

Can they prove that they are who and what they tell you they are? Do they have a track record of doing what they claim to be good at? 

Can you find good things about them on the Internet? (Praises from people already in the scheme don’t count.) 

When someone approached me about YSLM in February, I looked up CDTup International — named as the company running the scheme — on the Companies Commission’s database. 

Until November last year the company was called Perfect Nutrients Sdn Bhd, whose business involves direct sales of healthcare products. 

I was alarmed that the company has been loss making for at least two years running. More importantly the company, which strangely turned from healthcare to an obscure venture of recruiting members under YSLM, is run by two directors aged 24 and 25. Mr Zhang Jian’s name is not listed. 

Red flag? Check.

Where is the money coming from?

So the scheme promises you great returns for a relatively small amount of cash. But where are the returns coming from? 

Are they selling a clear, understandable product? Is there such a great market that these great returns — which more often than not are at a rate beyond what great investors can manage — even make sense?

Now what does investment mean? According to the Oxford Dictionary, investment is the act of investing money for profit. So usually an investor puts in money into a business, the business uses the money to create a product or service and then sells that to consumers who pay money for it. 

A good business gets more money than it costs and that flows back to the investor, who gets more money than he invested. Voila, returns.

As for YSLM, members need to recruit new members as their downline to enjoy earnings. While they claim to sell products, it is not clear what is so great about these products bearing Mr Zhang Jian’s decal that returns would be so phenomenal. 

That means the so-called “investment” scheme is more focused on getting more people in than selling products in order to get you, the investor, returns. In other words your “returns” would likely come from the money newer members put in, and the cycle continues.

Red flag? Check.

Why are they letting you in?

Okay, so maybe you decided to give the scheme the benefit of the doubt. But if the scheme’s business model is so great that they can guarantee you great returns, promise a very specific figure in terms of payout on a regular basis, then why do they need you, a small-time investor who only has a few hundred ringgit? 

With such an iron-clad business plan, any bank worth its salt would be falling all over itself to provide financing — that means hundreds of millions of ringgit after just one handshake with the banker. 

In YSLM’s case, the scheme can probably raise RM3 million from one bank after a day’s discussion and presentation compared to the months it would take to recruit 10,000 people to raise RM3 million that way.

So the scheme would be able to raise a great deal more capital in an extremely shorter period of time. Best of all, banks would probably not demand as high a return on their financing amount as regular investors. So why go through the trouble and waste time?

Red flag? Check.

Do the returns make sense?

Maybe they convinced you on all of the above. But another question to ask is whether the returns promised make sense. How can they be so sure that they can put an exact percentage and ringgit figure to it? Is there no risk, no market headwinds to navigate through?

Bear in mind that numerous long-established businesses that are listed on Bursa Malaysia never give out guarantees. These are companies that are consistently profitable year after year. 

Yet all they give is a target figure of profit — if at all — and often they only express optimism rather than fix a target. They certainly don’t pretend to predict the future by announcing a rate of return over a period of time.

For YSLM, the big return bandied about was a BMW. Taking a BMW’s price at RM600,000, that means your RM300 would come back 2,000 times more. Now what sort of business in the world would give you that sort of returns? Why aren’t the big corporations doing it?

Red flag? Check.

Of course, there are many more questions you can ask, but these four questions should be enough to set alarm bells ringing if you can’t get good answers. In which case you should say goodbye, turn around and run fast.

* This is the personal opinion of the columnist.