If this investment strategy is for real (have to wonder), it's one of the most ridiculous ones I've seen yet. It's surprising that Bloomberg would publish the article that Paul's commenting on. ~ Ilene
By Dr. Paul Price (full article at Guru Focus)
The Jan. 21-27 issue of Businessweek ran an article praising what Pakistani Community Savings "circles" called Ballot Committees. The author noted that these organizations force citizens to save while paying no interest to their participants.
The article came complete with three photos of typical "savers." Muhammed Sajid was said to have bought a Dell laptop with his distributions. A mother and child proudly posed with their new microwave oven. A third saver showed off his new Nokia phone.
Ali, a merchant in the Karachi market was said to have bought a car and acquired a new store in his 15 years of saving with Ballot Committees. Bloomberg noted that he’s now just months away from getting 400,000 rupees ($4,100) from a nearly year-long, 1,000 rupee a day deposit with his local group. Ali planned to put a down payment on an apartment.
Note that one year’s worth of 1,000 a day equals 365,000. How can a 400,000 return be possible on a non-interest bearing account?
The implication was that without these wonderful committees the purchases illustrated would never have been possible. In reality the best one could hope for was to simply get back all the money they had deposited after taking about an 8% annual hit to buying power due to inflation (Bloomberg’s estimate).
Ballot Committees collect a set daily or monthly deposit from a group of trusting people. The term is typically set for one year. Each participant is then "voted" a number designating his turn to be paid a whole month’s worth of collections (i.e. the total amount contributed by the entire group). The article stated that the organizer usually would personally collect the money while charging no fee. These committee insiders would usually be first to receive their entire year’s distributions in a lump sum.
Here’s an example of how this might work in a best-case scenario.
Keep reading: Bloomberg Businessweek Endorsed a Ponzi Scheme – GuruFocus.com.
