Investment Newsletter for the end of December, 2022

4th quarter was good and the second half of the year was good. Unfortunately, the first half of the year stunk so bad that the year was down.

As a result of the recent meltdown of Sam Bankman-Fried and his crypto companies, we feel a good topic of discussion is due diligence. In his case, he promised very high returns. He is now being criminally charged. Apparently, many billions of dollars are now gone.

Due diligence is when you investigate the claims of a person or company. The unfortunate truth of the world is that people sometimes lie. As a result, you need to check if their lying. You don’t need to be paranoid or cynical but you should be aware of what’s going on. There have been many fraudulent claims made over the years, usually in an attempt to trick people out of their money. Another great example would be Elizabath Holmes and her company Theranos. She made fabulous claims and has now been convicted of fraud.

The key points are that the bad guys make too good to be true promises. They say the old rules do not apply. The world is now different. They are smooth presenters and spread lavish money to key influencers. Politicians, charities, entertainment figures, etc. They now have respectability and you believe them.

What exactly due diligences entail depends on the situation. In a financial context it would be usually involve examining the financial statements and reading the company reports. For the former, people usually look to see if numbers have been manipulated via various accounting tricks. For the latter, people can check if misleading language have been used or if the report leaves out important information. Often, if a company seems to be too good to be true, then something is wrong. Now sometimes a company is actually extremely good, but those companies are the exception not the rule.

If a promised profit sound too good to be true, WARNING. The old rules always apply. The world is not different.

Investment is likely the best way to accumulate wealth due to the power of compound interest. If you were to deposit 100 dollars each month into the Dow, then based on historical returns, you will have over 1.3 million dollars after 50 years. If instead you invest all that money into a fraudulent company, then you have 0 dollars. Doing your due diligence can be very profitable. You should probably still invest your money. Money that is not invested is not valuable for building your wealth. You just need to be careful how you invest. In our opinion, due diligence will minimize your risk.

If you have any questions about your investments, please call at any time. We sincerely hope you got value from this newsletter.

We appreciate your business and trust.

Dan and Eli

As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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