[Retired at 31]

It seems almost fashionable to be part of one these days? And the bigger the losses, the more sensational, but it's got me thinking. Just how much have people actually lost? Are they counting only the original investment, or do they grow bigger because people think they've lost money on the gains they never had?

Ex: I invest 100K with Mr. Can't Lose. He's driving a Ferrari with my money from day one (ok maybe he's using my cash to lure in other suckers, but you know what I mean - my 100K was never invested in anything), but he sends me statements for 10 years saying my investments have grown to 500K. I haven't put anymore money in, I'm just stoked to see above average regular returns year over year.

Have I lost 100K or 500K?

 

[Rickson9]

It seems almost fashionable to be part of one these days? And the bigger the losses, the more sensational, but it's got me thinking. Just how much have people actually lost? Are they counting only the original investment, or do they grow bigger because people think they've lost money on the gains they never had?

Ex: I invest 100K with Mr. Can't Lose. He's driving a Ferrari with my money from day one (ok maybe he's using my cash to lure in other suckers, but you know what I mean - my 100K was never invested in anything), but he sends me statements for 10 years saying my investments have grown to 500K. I haven't put anymore money in, I'm just stoked to see above average regular returns year over year.

Have I lost 100K or 500K?

They are looking to recover any money not put in by victims. In your example, the government will go after the "victim" for (at least) the $400K excess (yes, part of the plan is to go after victims who "profited").

http://www.cbsnews.com/video/watch/?id=5345013n&tag=contentMain;contentBody

With regards to your question, the newscast doesn't go into how they define "losses".

 

[sprocket1200]

i hope you aren't surprised that the media didn't go into how they define things. they are doing well to get even half of the facts correct...

although, all news is entertainment anyway

 

[CuriousReader]

Interesting, ...

• 
  for people who makes profit (pulling their money out before all was uncovered) - Is it fair game that they have that much gains? - I am incline to say they are not at fault for making a lot of proft, of course, it is as long as they arent involved in the scheme themselves. If they happen to make a good decision to pull the money out before things unravel, they shouldnt be held accountable, shouldnt they?

• 
  for people who lost all - may be they havent lost $500K, but may be they should calculate the total lost in terms of "what could have been" had they invest it in an average investment - This probably sounds idealistic and impossible to calculate though, but what I am saying is they havent lost as much as $500K, but they lost more than $100K

 

[scomac]

The answer to this question should be fairly straight forward. When you put money in a risky investment what you have at risk is your original invested capital. If there were distributions over time that you chose to have reinvested in this investment pool, then that too becomes your "money at risk". The value of the investment on paper which would include any paper gains is irrelevant. The only number that counts is the book value of your investment and that would be the loss.

 

[byronbb]

Have I lost 100K or 500K?

100K+40k on lost interest + effects of inflation?

 

[OhGreatGuru]

100K+40k on lost interest + effects of inflation?

No. As scomac says, from a normal return on investment point of view, you can't count what you might have earned if you had invested in something different. If you bought 100K stock, and the value didn't change, you wouldn't consider that you had suffered a "loss" of 40K because you might have made that in interest by investing elsewhere.

The effect of inflation is of interest to an investor in computing an adjusted ROI. But unless you were buying an investment that was supposed guaranteed to be inflation protected, it would still not count as a "loss" against your adjusted cost base.

So technically their only loss is what they put in. They have suffered opportunity losses through a bad choice of investment (but that happens with honest as well as crooked advisors); and some of them have had associated losses through being foolish (or greedy) enough to borrow money for these schemes. But again, even an honest advisor is not liable for your willingness to take risks by borrowing to invest. Remember these people could have lost all their money by buying Nortel stock, and it wouldn't be a crime (well, maybe that was a bad example the way Nortel was managed, but you get the drift.)