You, too, can be conned

I made an enemy this week.

She is the widow of an old friend.  Before he died, I promised to try to look out for her a bit.

During our recent conversation she said I made her feel small.  She said I made her feel stupid. There were tears. I’m very likely guilty on both counts.  I’m not always tactful.  But, hopefully, I saved her two million dollars.

Her husband died a while back.  Over the years he worked hard and had acumulated the aforementioned $2,000,000.  He loved his wife dearly and he knew he would very likely leave her a widow.  The money was an act of love.  He wanted to be sure she would be financially secure.

But he also knew three things that scared him no end:

  1. His wife believed in the “free lunch.”  That is, she was always open to come-ons.  Free cell phones were an example.  Every time their cell phone contract expired the provider offered a “free” cell phone which she proudly grabbed.  Somehow she seemed to miss the two year contract it locked them into, over and over again.  While small potatoes, it is a bad sign.
  2. The world is filled with predators looking for precisely people like her.
  3. Money and this belief in the “free lunch” attracts them like sharks to blood in the water.

It was this topic that set me off and brought her to tears.  I was trying to gently coax her into appreciating the risk.  She is a very bright woman and seemed to understand.  But then she said, “Don’t worry.  I can’t be conned.”

“With that you have,” I said (and by this point my voice I fear was raised) “just violated the first rule of not being conned!”


Make no mistake.  You can be conned.  So can I.

Here’s one I came across many years ago.  Fortunately I read about it.  In those days, I might well have taken the bait.  Here it is:

One day you get a letter, or maybe these days an email.  In it, an investment advisor introduces himself and  offers you a stock tip.  ABC Corp is going to dramatically rise in price over the next week or two.  Don’t invest, he cautions, without doing your homework.  But his proprietary metrics are pointing to this one as a strong buy.

You’re no fool but you decide to maybe keep an eye on it.  Just to see.  Sure enough, it sharply spikes up.  You could have made 50, 60, 100% on your money in a just couple of days.  Damn.  Letter 2 arrives.

This one says, BCD Corp is poised to take a sharp fall.  Our metrics, it says, say short (shorting is  a way to sell stock you don’t own on a bet it will decline in price) this stock.  You are a careful investor.  Again you decide to watch and see, although with a keener interest now.

Sure enough, this one collapses as predicted.  Had you acted, big profits would have been yours.

Letter #3 arrives.  Then #4, #5 and maybe even #6.  Each is dead on.  The stock rises, or falls, exactly as predicted.  Maybe you even took a chance and profited from one or more.  Hard not to be impressed by now.  I would be.

Then you get an invitation to dinner at one of your area’s finer restaurants.  You and a hand full of other “executive level investors” are invited to an informal meeting with Mr. Hasn’t-Missed-One-Yet.  He’ll be discussing his proprietary investment metrics and how they’ve made him rich.

At dinner, Mr. HMOY is soft-spoken.  He is warm, kind and concerned.  He has all the trappings of wealth, but in a tasteful, understated fashion.  Charts and graphs are presented.  The exact investment approach is unclear, but then it is proprietary.  This is to be expected.  Oh, and barely mentioned in passing, it just so happens a couple of slots remain open in his latest investment pool.  There is certainly no obligation but, of course, “based on our experience” they will be snapped up by tomorrow.  So, if you are interested….

Can you see the trick?  (and like all magic, it is a trick) If you can and this is the first you’ve come across it, you are a better man than I.  But don’t get cocky.  If not this one, there’s another that will fly under your radar.  In can happen to you.  Fail to understand this and it will.  That’s the first rule.  Here’s the full set:

Rule #1:  Everybody can be conned.  Certainly stupid people are marks.  But so are the exceptionally bright.  The moment you start to think that it can’t happen to you, you’ve become a most attractive target.  The easiest victims are those that think they are too smart, too knowledgeable to be taken.  This means you, bucko.

Rule #2:  You are likely to be conned in an area of your expertise.  The reason is simple:  Targeting and Ego.  When con men pick a scam they look for people to whom it will naturally appeal.  Those are people in the field.  People feel secure and safe in those areas they know well.  They believe they will be too smart to be caught unawares.  Smart people know the areas they don’t know and tend to be far more cautious there.  Most of Bernie Madoff’s victims were financial professionals.

Rule #3:  Con men (and women) don’t look like con men.  This isn’t the movies.  They’re not going to have slouch hats pulled low over their shifty eyes.  Successful con men look like the safest, most trust-worthy, most honest, most stable, most comforting people imaginable.  You won’t see them coming.  Or rather you will, and you’ll be warmly welcoming them.

Rule #4:  99% of what they say will be true.  The best, most effective lies are surrounded by truth.  Buried in it.  The con, the thing that will leave you broke and with a real reason to cry, is carefully hidden.  It is deep in the proverbial fine print.

Rule #5:  If it looks too good to be true, it is.  There is no free lunch.  Not ever.  Your Mama taught you this.  She was right.

Listen to your Mama.

Of course, not all cons are clever.  An email from a Nigerian stranger offering you, random old you, millions to accept his money transfer should be obvious.  Right?

The stranger knocking on your door and offering cut-rate home repairs because we “just happen to be working the the neighborhood” if only you pay in cash up front, is a con man.  You know this.  Right?

Those are the kinds of simple cons my friend’s wife was thinking about, and she’s right.  She is much to smart to fall for those.  But those aren’t what had her husband worried.  It is the Mr. HMOYs of the world who seek out the smart, the rich and the lonely.

If you have not already done so, have these conversations with your own spouse.  Don’t leave it to a tackless (although honest) friend of the family like me.

Given the actuarial tables and her good genes, my own wife will likely also outlive me by a couple of decades or more.  Since I handle our investments, we have this conversation on a regular basis.  We review what we own and why.  Fortunately, she understands the principles and their importance.

As an aside this is one more reason I’m a fan of index funds.  I want to leave her with a simple portfolio she can leave on auto-pilot.

So far these discussions haven’t lead to my making an enemy of her.  Yet.  I think.

How’d he do that??

Investment scams are so common, and successful, that even the Canadian Government has set one up as a cautionary tale.  2-Cents shares it with us here:

Oh, and if you know how Mr. HMOY did it, post it in the comments.  If no one does, in a week or so I’ll add a post script with the answer.

Update:  Aaron nailed it right out of the box.  See his comment below.

Addendum: Here’s a story of a near-con from James Altucher

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  1. Matt @ RamblingFever Money says

    That is unfortunate, the way your relationship with your friends widow is turning out. Hopefully she understands at some point that you are just trying to help.

    Your statements about con men lead me to wonder, what if they themselves are being conned? What if the con man thinks that he is an actual salesperson selling a useful product or service? I immediately think of a vacuum cleaner salesperson. A couple of years ago, she agreed to let the Rainbow vacuum people do a demonstration in our home. We were supposed to get a week long vacation in the Caribbean (or something like that). We never got it, and we’ll never get back the 2 hours we wasted listening to their spiel. $3,000 for a vacuum cleaner!!! No thank you.

    Were they trying to con us into paying that much for a vacuum, or were they conned into thinking that they were selling a product that is actually worth that much?

    • jlcollinsnh says

      Thanks Matt….

      I hope so, too. but I also need to work on softening my approach.

      Interesting question and the answer probably ranges all over. my guess is most employees have probably drunk the kool aid and are true believers.

      but I have also known guys who worked in “boiler rooms” selling bogus investments they knew were crap. they reveled in the fact the stuff was crap and took delight in cheating their customers. not to mention the big money they made.

      There are a lot of very unpleasant people out there….

    • David W says

      I had a friend in HS who got a job selling Kirby vacuum cleaners and as part of his “training” he offered to clean the carpet at my house. Since all the floors were hardwood I suggested cleaning the upholstery in my car. I will admit the vacuum worked well, but it was also clear that something shady was going on.

      After the demo I obviously was not interested in paying the $1600 for the vacuum cleaner (what HS kid would be?) so he got on the phone to his boss who agreed to temporarily knock $200 off the price if I committed to the purchase right then. I told him I would pay $50 total for it *grin* and my friend relayed the message. This went back and forth until his boss was offering $400 for the vacuum and we could even set up a payment plan.

      A few weeks later my friend quit the job saying that the more he learned about it the more he felt scammed. He was working commission only and never made a sale. Point being… I think he was the one being scammed as well as any customer willing to pay $1600 for a vacuum cleaner.

  2. aaron says

    Its a pyramid. Each week fewer letters are sent out…only to those who received accurate forecasts the past week. By the end of 5 or 6 rounds, a few thousand letters have netted 10 or 20 patsies who have received perfectly accurate predictions each week. Pure chance and the dwindling size of the letter pool allow the seeming “accuracy” to persist.

    • jlcollinsnh says

      and we have a winner! that didn’t take long. congrats, Aaron. How long you been running this scam? 😉

      the only thing to add is each time the scammer has to find a very volatile stock. all he needs is a big move, either way. Each batch of letters is divided into two: one predicting a rise and the other a fall.

        • Cameron says

          The best way to beat a con artist is to have a few as friends. Not only are they incredibly interesting, but the old saying “you can’t bulls–t a bulls–ter” will have you fit and poised to recognise a scam a mile away.

          I have a few mates who are mad gamblers. The trick JL describes above is common in that industry, with sports tipping services.

          Know thy enemy… keep them close.

  3. Trish Rempen says

    Oh, and being conned can be painful!
    I speak from experience….and what you say is right. It’s in your area of expertise, because you think you know what’s going on. It’s people you feel you can trust, because otherwise – well, you wouldn’t trust them. Your guard would be up. Ah well!
    “There’s a sucker born every minute,” as I think PT Barnum said, and he’s right.

  4. DollarDisciple says

    I was going to say that it’s a “pump and dump” scheme but the way Aaron described it is even more clever! Why didn’t I think of that?! Maybe because I’m not a con man 🙂

    I would rephrase rule #5: If it looks too good to be true, it *probably* is so do more research

    Sometimes, you really *can* have runaway success. Look at Google or Apple!

  5. Andy says

    Hi Jim,

    I just read you latest blog on not being conned. I thought it was very good. Fortunately, I’m smart enough to know that I can easily be conned so I try to live by the rule if it’s too good to be true it probably is. The Nigerian’s stopped emailing me after I replied “Nice try” to the last email they sent me.

    I wanted to tell you that I took your suggestion and I am turning my articles into a book. I’m sitting at about 37,000 words right now and I suspect that by the time I finish fleshing out the articles, I’ll be close to 60,000 words. I actually signed up with a book writing, publishing, and speaking coach that Mark Matteson recommended. I am working with Patrick Snow and he is going to help me self-publish the book through a publisher in NYC. Patrick is an international best-selling author; he has sold over 100,000 copies of his book, Creating Your Own Destiny, so he knows how to do it. He suggested that I mock up a cover for the book, put it on my wall so I could look at it, and visualize the finished book. So I created an attached image in Photoshop and pinned it to my computer desk where I see it every day. I also secured the website, to promote the book once I finish it.

    I’ll keep you posted on my progress.



    • jlcollinsnh says

      Hey Andy,

      Great to see you here and thanks for commenting. Now I know why the Nigerians have stepped up their emails to me!

      Great news on your book. I can’t wait to read it! I’ve always been impressed with your ideas and thought process. Post a link to the cover if you can and keep us posted.

      I’ve also been thinking about a book and the disciple of writing this blog is helping get me there. Self publishing will be the route I take as well. You might check out this on the subject, it’s the advice I plan to follow:

      • Andy says

        Jim, Thanks, I may try to incorporate the potential cover art onto the landing page for the book but for now I’ll have to email it to you.

        The strategy on self-publishing is simple,

        1. you get to keep 100% of the profits.
        2. use the book to generate speaking engagements
        3 use the speaking engagements to sell more books, generate more speaking engagements, develop coaching and consulting sessions
        4. use the book to sell more of your products, other writings, other books, ebooks, etc.

        That seems to be the simple formula that the successful entrepreneurs are using. Most authors will tell you the money is not in the book, it is what you do with the book that makes you the money. I’m hoping it will add credibility to my consulting company. I enjoy speaking in front of an audience, and I miss not doing that so I’m hoping that this will help get me doing that again too. Who knows, maybe our old friends at Penton might hire me to speak at an upcoming Comfortech.

        • jlcollinsnh says

          Yep. That’s my understanding, too. It also has synergies with a blog.

          There’s no money in bloging, for me anyway, although I guess there is for some. I also wouldn’t expect the book to make much, if any. So far this is just a hobby that I’m enjoying.

          but, who knows?

          Back in the day, I very much enjoyed my speaking gigs although it is a lot of prep work to do it well. as you know.

          Where is Comfortech this year?

  6. femmefrugality says

    Oh, no good! I’m sorry it’s souring the relationship. I have no idea how he did it. But you’re right…so many free things; none of which are free. If an opportunity’s too good to be true, it probably is. I guess I’m just full of cliche’s today…

  7. Kathryn C says

    When anyone says “proprietary” in their pitch, you know it’s horse sh-t. Proprietary just means “we have gobs of money to build systems that may or may not ad any value to you, they just look fancy.”

    Am I Mr. HMOY’s worst nightmare? Probably.

  8. Shilpan says

    JC, I love this post. As that age-old adage, “If something sounds too good to be true, it probably is”. You can’t learn common sense in school, but you can by becoming a street smart.

  9. 101 Centavos (@101centavos) says

    I had a good friend at work whose son-in-law was bilked out of a good chunk, northwards of 200K. I hesitate to call it a “typical” forex long-con, but that’s what it ended up being. I heard later there were similar set-ups going on in Florida. For a $20 million payday, which is what the con men eventually skipped town with, I imagine the costs for set-up and the operation were substantial. They had software programs written and swanky offices leased downtown for quite a while.

  10. Cameron says

    Where I’m from, bookmakers offer cash bonuses to new clients who sign with them, sometimes up to $1000. When you multiply that by the number of players in the market, this becomes lucrative… you make a no-strings-attached $6000 or so and go on your merry way. When I tell people about this, lots think there’s a catch. Doesn’t matter how I explain it, they just don’t believe me because it sounds too good to be true. Their loss (or opportunity cost) I guess.

    On the other hand, I got an email from my ageing Dad (who lost a sh!tload of his life savings in the 2008 crash) saying Iraqi dinar were going to revalue to $3 each (it’s currently cheaper to buy than Monopoly money) and if I gave him $1000 he’d make me millions by the end of the month. That was March 2010. I declined but unfortunately for him, so has the value of the dinar and the good will of those closest to him ever since.

    Incredulously, my Dad’s had more luck recruiting for the dinar scam than I’ve had for the bookmaker cash grab!

  11. Trev says

    I noticed a “con” in my local Hong Kong mutual funds market recently, not sure how long this has been going on. There are a large number of bond funds that claim to pay very high dividends (about ~8% ). Upon closer inspection, there is a small but worrying clause buried in the fund fact sheet:
    “Dividend payments may, at the sole discretion of the Investment Manager, be made out of the Fund’s capital or effectively out of the Fund’s capital which represents a return or withdrawal of part of the amount investors originally invested and/or capital gains attributable to the original investment. ”

    Such an arrangement is fraught with moral hazard. A cynical way to look at this is the fund manager without much skill or effort can create high dividends and use it to attract buyers – charging them a hefty sign on fee, and then literally pay the investors their money back in installments while charging them another fee each year.

    The way they report performance supports the cynical view:
    “Fund performance is calculated on NAV to NAV basis in denominated currency of the respective share class with gross dividends re-invested.” My understanding of good accounting practice should not include dividends in NAV – I believe they are trying to obscure the fact that dividends are paid out from capital.

    Not surprisingly, the actual performance of the fund is mediocre.

    I am surprised that it is legal for fund managers to pay dividends out of capital, I’m pretty sure it is illegal for say a listed company to do this. I see some parallels between such an arrangement and pyramid schemes a la Madoff.

    Check it out for yourself:

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