Thursday , May 24, 2018

Defending EmGoldex and failing miserably

I RECEIVED a lot of feedback on my previous article, "Is EmGoldex a Scam?" both in the comments section, as well as via email. Of particular interest to me were the staunch defenders who proclaimed that my logic "sucks" and that I didn't do the proper research, and they proceeded to explain how I wrongly described this or that specific detail in their payout scheme.

Truth to tell, I expected this because as I have already mentioned, I have seen this happen over and over again in the past. It's like knowing the secret to a magic trick. Once you've seen it, then you know how it's done and even if the magician does variations to the trick, you can still probably figure out how it's done, because you know the basic principle.

In other words, I don't need to fully understand the marketing plan of EmGoldex or whatever other company out there. All I need to know is the gist of it, as well as some knowledge of its products, and it’s easy to tell if it’s a scam or not. Perhaps it's my critics who should recheck their logic and do their proper research on pyramid schemes.

I was, after all, a teacher of algebra, geometry, physics and computer programming. So I have every reason to be very confident with the soundness of my logic.

The bottom line is this: How is the company earning money?
If it earns money mainly via recruitment, then it is a pyramid scheme by definition. It may even be registered with SEC (it’s not that hard to register a corporation and make it sound legal at first). Many past scams were registered with SEC so that’s not really a guarantee -- although a company that isn’t registered ought to make you really doubtful.

It also doesn't matter whether this celebrity or that politician endorsed it. Come on, these people are human too and they can make mistakes, or they can be scammers as well. What? You don’t believe that politicians or celebrities can be scammers? Then you might be interested in buying a 2.5 billion peso parking building in Makati that I happen to be selling.

So what if it's a pyramid scheme? If people know what they’re getting into and are willing to take the risk, why shouldn’t they be free to do so?

Well, the problem is that sponsors or up lines are RARELY transparent about the risk. They will always focus on the upside and downplay the downside. They will show you how easy it is to double, triple, quadruple or quintuple your money. And all you have to do is to "invite two, only two."

They don't tell you that majority of those who invested have not yet earned anything. In fact, they spend a lot of time trying to convince you that the company is legitimate, and that it is not a scam, and so on and so forth.

But as I have shown in the last article, for every person who exits, there are 14 other people who are waiting -- in other words, they haven’t earned anything yet. What they don’t know is that the money they invested was used to pay out the exiting person and the rest goes to the pocket of the owners.

Ah, but they will say that it doesn’t really go into their pockets because they have to pay out the next exiting person. True, but remember that the next person can’t exit unless there are new people coming in (or old people who "reinvested") so there's always fresh cash coming in and only a fraction of that is used to pay out the exiting person.

Now, experienced schemers will rarely admit that they make money from recruitment (because they know that they will be trapped by the definition of a pyramid scheme). Therefore, they will try to persuade you that they are really in the business of buying and selling gold, and that is how the company makes money.

Again, that is patently false and is relatively easy to demonstrate. The historical price per gram of gold can be found in the website, which uses the London gold fixing price as its reference.

If we look at a six-month window on the price of gold (from Dec 2014 to June 2015), we can see that the highest point is at $41.66. and the lowest point at $36.88. That means even if I bought at the lowest point and sold at the highest point, I would have earned $4.78 which is roughly 13% return on my original investment.

Let's look at a one year window (from June 2014 to June 2015). The highest point is at $43.09. and the lowest point at $36.72. Following the previous analogy, I would have earned $6.37 or 17% return on my original investment.
(Note that in both these scenarios, I am presenting the BEST CASE -- buying at lowest and selling at highest -- but we know this RARELY happens in reality. In fact, if you had bought gold in June 2014 at around 40.50 and held on to it, your portfolio would have a negative net value today because gold in June 2015 is only 37.80.)

But going back to the analogy, we have seen that in even the best case for one year, we only got a 17% return by buying and selling gold. In contrast, EmGoldex promises to turn your P35,000 into P180,000. That's a whopping 514% return on investment. So tell me, how did they earn that much money in such a short time? By buying and selling gold? But we have already shown that's not possible.

Therefore, they earn from recruitment, and therefore, it’s a pyramid scheme.


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