One of my favorite authors, Frederick Forsyth published his first action suspense thriller in 1971 (Day of the Jackal). I just finished reading his autobiography and found out he lost his entire savings (from the numerous best selling novels and associated revenue streams following his first) to fraud in the early 1990’s. His investment manager was running a classic Ponzi scheme.
When is good not good?
This got me thinking about a quote from Bill Gates, “If you can’t make it good, at least make it look good.”
In the classic Ponzi scheme you gain your investor’s trust by making it look like you are a skilled and clever money manager who can earn them a large return. That is, might not be good, but looks good.
How is it done?
Using the basic psychological principal that underlies gambling addiction, Ponzi schemers provide actual intermittent rewards that seem fabulous.
Basically using money from new investors they actually pay the old investors real cash at an inflated rate (e.g., 25% or more). Ultimately though they stop paying most investors except through supposed reinvestment of earnings supported through forged records make it look the strong returns continue (after they have gained their trust). On and off when an investor needs money paid out, free cash from new investors is used.
These investment managers are not really good at investing but they make it look good.
Looking Good!
Today’s post is just a reminder that “looking good” is just that, a perceived conclusion not supported by facts beyond your visual input. Remember that old adage, “what you see is not always what you get”.
Of course, there is a caution here. Living your life being suspicious of everything bridges on paranoia (fear of things that are not real) and is to be avoided.
There is a happy balance between checking and trusting and each of us must find the place that works best personally. In the case of Mr. Forsyth (based on the description in his autobiography) he just accepted the fraud (managing money was not his thing) and moved on writing more best selling novels and earning even more money. Good attitude (at least I perceive it to be so).