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The problem with investment "gurus" is that you never can be sure whether their methods will be equally successful in all economic environments.

Everything works in cycles and strategies that outperform today will underperform tomorrow. The same can be said for the gurus. They might be super stars through an entire cycle of the economy, which can last 7-10 years, but then crash and burn when the cycle changes. Take one of the legends of the investment markets, Bill Miller of the Legg Mason Value Trust (LMVTX).

Under his management, the Legg Mason Value Trust outperformed the Standard & Poor's 500-stock index for 15 consecutive years, from 1991 to 2005 - one of the longest winning streaks in investment fund history. Money poured into Legg Mason, as it always does when investors chase returns. But his Value Trust's performance collapsed in the volatile years after 2006, underperforming not only the S&P 500 but most other funds as well.

Legg Mason had a cumulative loss after 2006 of -30.05%. The Value strategy that had worked so well – buying assets that others are selling, buying companies in distress and waiting for their recovery – no longer worked because of the nature of the financial crisis in 2008.

Miller had made money in virtually every crisis since 1987. "But what's different this time, over my 30 years of investing," he said, "is that contrarian value-based investing just isn't working anymore."

Shares that fell below their long term values stayed down. Bill Miller is just one example where chasing magical returns just did not work for investors. Underperformance that follows outperformance is the rule rather than the exception.

Yet many say that you need only look at Warren Buffett, who has consistently delivered 15% per year in the 50 years since he started his fund, and any notion that gurus all get their comeuppance is soundly refuted. But I think Buffett proves the point that it is very difficult to stay ahead of other investors indefinitely, because he is the rare exception.

When we encounter an amazing investor like Warren Buffett, with a proven ability to beat the market returns over 50 years, we treat him like a God. Yet, isn't beating the market returns what an investment expert is paid to do?

When an engineer builds a bridge that stands for 50 years, do we make a fuss over him? Do magazines rush over for an interview? No, because engineering is a profession defined by success. Investment is defined by failure. It is simply very hard to be good at it.

No one can emulate Buffett, but we can at least stay ahead of market returns with a sensible portfolio strategy that looks to capture all the economy has to offer, at lowest cost possible.

New Zealand courts have dealt with several Ponzi schemes in the past few years, where investors are fleeced by some guru who had promised high returns in return for not asking too many questions.

The safest and simplest way to own assets is by having it in your own name, registered on a recognised register of ownership. The alternative is where it is held by a custodian on your behalf. Both offer security of ownership.

Yet that is not what happens in these Ponzi schemes, where the investor basically hands their money over to a guru advisor of some sort who invests in his/her own pool of investments, and then allocates the pool to the investors. There is no oversight and no one can prove that the assets actually exist. All you have is what comes off the advisor/manager's printer. You can print anything, it's just a piece of paper.

The template for a Ponzi scheme works as follows:

1. You are advised to invest with a family member/ religious group, friend of a friend or some other trusted person who is a financial wiz. The close relationship is important because you are going to be too embarrassed to ask for evidence of what exactly is happening to your money. This opens the way to "Affinity Fraud", one of the biggest areas of fraud worldwide, involving people you know and respect or who are family and friends and who take you to the cleaners.

2. You are provided with proof of superior returns by others investing with this investment manager. Superior returns are possible over short periods but always are achieved by taking higher risks, which only later come home to roost.

3. The returns are very stable year on year, with little sign of volatility that usually accompanies high returns. This is the giveaway. It is technically impossible to produce better than market returns with lower than market fluctuations in those returns. The chart below shows how superior returns were achieved over more than a decade with no fluctuations by a brilliant fund manager, called Bernie Madoff. It was the low volatility rather than the high returns that raised red flags among some analysts who warned that Bernie must be running a Ponzi Scheme. From the fraudster's point of view, it is imperative that there is never a fall in value of investments as that would trigger a rush of investors taking their money out of the fund. In a Ponzi scheme late cash pays early investors and if there is a rush of funds taken out, the Scheme unravels because there is not enough cash to go around.

4. Your assets are not registered in your name or held in custody on your behalf. In a Ponzi scheme the investment manager holds the assets in his name in a pool of similar assets where the results can be manipulated and fictional ownership created.

You should only invest in a manager who can display substantial protection for client's money, through independent custodians, regular audits and independent reporting of assets held in custody sent directly to the client.

Madoff: High returns plus no volatility = trouble