The Con Artists have mastered the Art of Ripping us off

Amar Pandit , CFA , CFP

I received a very simple message the other day that I have reproduced as received

NO GYM, No yoga, No Exercise

Wajan Ghataye 28Kg Tak

Hip Thigh or 5-inch Tummy

Money Back Guarantee

Success Rate 95%

No Side Effect

SMS Kare

MTP to 88866*****

Yes, Guarantee is everyone’s favourite Guarantee.

Look at the Power of this message. Though you know it is bullshit, you still tend to believe it for a moment. What if it works? What if there is this magic pill that this saint is doling out? I might be missing out. Frankly speaking as a person who is perpetually (making new highs and lows like the Sensex) trying to lose weight (trying because I lose and then I gain some), this message gets my attention because of the way it is structured. By now, I am more of a seasoned fellow in screening bullshit and bullshitters, but hey I am human. The thought of “what if it works” ran across my mind too for less than milliseconds but it did. Did I act on it? Nope I ignored it confidently, but I promise to call this fellow sometime and figure his magic pill from a pure entertainment perspective (and I promise to share the story with you).

Such bullshit is regularly doled out in the Financial Services Space and you might be surprised or not but too many people fall for it. Even Bernie Madoff (the former non-executive chairman of NASDAQ) pulled off the largest $70 billion scam (where he fooled not only high net-worth investors but also Banks and Financial Institutions) did something like this. Yes, obviously not with a message like this, but in a very polished way. On June 29, 2009, Madoff was sentenced to 150 years in prison, the maximum allowed. It surprises me that someone who almost had an income of $ 100 million every year from legitimate means would resort to something like this. The reason was that he never had ENOUGH. But why do people and more so intelligent people fall for this you may ask. This is because there is no correlation between intelligence and greed.

Greed like speculation is an innate human element, which exists in each and every person (in all of us). Many are able to get control over it and many are not. Just think about it. A stock or investment goes up and you are told many have made easy money in it. Are you tempted to look at it? Many get this thought (even if it is momentary) “what if I could invest some portion and make a quick buck”.

The Con Artists know these innate desires or emotions too well and they capitalize on it. It is a very sound business model with a huge market size (means too many people) and no (or limited) capital investment. They master the language with a few words like in the above weight loss message. You would have heard of the serial Jamtara (if not watch a couple of episodes). Why do you think people fall for these credit card frauds or even for such stupid messages “the princess of ZZZ Land has identified you as her legal heir and left all her money for you”? All you need to do is wire the money to this account and get your millions of dollars.

I know what you are thinking. I am too smart for this. Even if you do not fall for the more obvious ones, there are many sophisticated ones that the best of the best would fall for. Bernie Madoff has already proven this. Thousands of smart investors fell for this. Even the legendary Warren Buffett was scammed out of $340 million in a PONZI scheme (That’s a loose change for him and Berkshire but we need to be super careful when we take decisions). Do not believe it; then Read the Post: Warren Buffett was Scammed out of $ 340 million in a Ponzi Scheme. Thus, read through the next paragraph or two to understand the things that will help you avoid such mistakes (and have a better control on the process).

The key thing to do is to learn the most dangerous words that cause us to act irrationally. The following are the deadly ones:

  1. Free
  2. Guarantee
  3. No-Risk (Zero Risk). There is risk in even crossing the road. The Con Artists know people do not understand risk well enough. Honestly, most people have a rudimentary understanding of risk. More on this some other day. See how is the person speaking about RISK? Does he /she mention it or have a realistic conversation around it with you.
  4. Tax Saving or Tax Sheltered or Tax Credits – The Cons also know that people generally do not like Taxes so they will come up with creative schemes for you to avoid Taxes. Be super careful here. Even something as basic as spending Rs.1 to save 30 paise is plain stupid.
  5. Fee – Why are you paying Fixed Fees? Pay only when I perform. By the way this is legitimate so I cannot technically call it a CON but hell it is. It is being dishonest with you under the garb of saying “Oh I care for you”. The person does not tell you that I only share in your profits; I do not share in your losses so I can take unlimited risk with your money to boost my income. Performance Fee never works in your favour and is one that you should avoid at all costs (Most High Net Worth Investors will come across this at some point of time).
  6. Time: Successful Investing is a Function of TIME and It will always take time because Time creates Money through Compounding.
  7. Effort. Everyone loves easy. Why don’t I automatically lose weight while eating the most tantalizing pastries or ice creams? Just like remaining healthy takes effort (you don’t start doing stupid things even when you get a six pack; in fact, you need all the discipline and care once you get it), it takes a hell lot of an effort to avoid these messages, temptations and magic pills. Patience and Discipline who seem like your enemies are going to be your best friends.

Finally, read the above again and avoid the con artists as well as the legal cons. The Legal ones are the most dangerous ones as they play on our innate desires/emotions and legally screw us.

Pardon my rant as some portion is due to my frustration over what I regularly see and some portion of it is because of what many others cannot see.

I end this post with a quote by Joan Collins that captures the essence of the weight loss message I started with “We live in a quick-fix society where we need instant gratification for everything. Too fat? Get lipo-sucked. Stringy hair? Glue on extensions. Wrinkles and lines? Head to the beauty shop for a pot of the latest miracle skin stuff. It is all a beautiful £1 billion con foisted upon insecure women by canny cosmetic conglomerates”.