Sunday October 11, 2009

I've Been Thinking:

Bloomberg News ran a spectacular piece explaining the investment risk of building smuggling tunnels in Gaza.

The tunnels are used to smuggle weapons, explosives, people and even livestock from Egypt into Gaza.
The Hamas government has promised 10% per month on investments. Remarkably, Hamas pays the dividends to investors - with only one exception.

If the tunnel is destroyed, Hamas does not pay.
That's a problem because Israel and Egypt have become very successful at destroying tunnels.
In response, Hamas has guaranteed 16.5% back if the tunnel is destroyed.

Pretty remarkable, right?
Well, not if you're an investor.
Investors are demanding all their money back if the tunnels are destroyed - they want a no risk investment.
According to the Bloomberg piece, 4000 people invested huge sums of money. One real estate broker named Sharub invested a half million dollars and now he wants it back.

As the saying goes, the greater the risk the greater the return.
But sometimes an investment is too good to be true.
In this case, investing in Hamas is a risk too good to be true.

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