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August 21st 2014 print

Peter Smith

Suckers Will Be With Us Always

Once again we hear calls for authorities to regulate get-rich-quick investment schemes. However noble the intention, such demands ignore the simple fact that, whatever the rules, sharks will find fresh to fleece the greedy and the gullible

gullibleMacquarie Bank is in the news for providing financial advice that turned out to be wealth-depleting. The Bank was reported as saying that investors knew the risks. This followed hard on the heels of yet another of those get-rich real-estate schemes that cost people of their life savings.  According to the exposé that I saw on the TV some mortgage brokers allegedly elevated investors’ declared incomes, meaning they could borrow more than they could afford in order to purchase over-priced properties. Like sheep to the slaugFsuckershter none of the investors appear to have done any research or queried their ability to repay those loans. There is clearly a need for a new support group, Suckers Anonymous.

As a callow youth with an equally callow friend I purchased horse-racing tips. We thought we would become rich. My dad knew about it. He expressed doubts about the venture but wisely stood back and let me lose my money. The first tip won. The next three lost. Along with our money, my friend and I lost interest. My dad never said ‘I told you so.’ He didn’t have to.

A lesson learnt? Maybe, but only in a limited way. Yes, I haven’t bought horse-racing tips again, but I have found other ways to lose money in search of the glittering prize. The valuable thing that I eventually learnt (and not before time) is that I am a potential sucker. I am inclined to believe what people tell me or claim to be true.

I suspect that almost everybody is similarly disadvantaged in dealing with spivs and main chancers and, more generally, with anyone who claims uncommon prescience. After all, the option of being distrustful as a normal setting would disrupt all commerce. Endemically corrupt societies produce impoverishment precisely because they engender general distrust.

I had a call a little time ago from a representative from one of those firms that sell their predictions of share prices. I told him that since studying Warren Buffet’s investment strategy I no longer risk my capital. His two rules made an impression on me after I lost lots of money on One-Tel, ERG and Intellect shares.  Don’t lose your capital is the first rule. The second is to remember the first.

In the course of our conversation, the spruiker said shares would correct by between 10% and 20% over the immediate period ahead. At the time they had edged down to sideways through the latter part of May and early June. I said to him that no-one knew what shares would do. My strategy, I said, was to sit on a few fully-franked, high-dividend, bluest-of-blue-chip shares in different sectors. I hardly ever sell, outside of extenuating events (like divorce). I hardly ever buy because I have no spare money. I am a very unrewarding client for a stockbroker.

Knowing my circumstances he nevertheless asked my whether he could call me again in the near future. I said yes. He has a wage to justify. Unsurprisingly, he hasn’t yet called me back because the share market subsequently rose strongly, rather than “correct” as he told me it would. I was right and would still have been right even if share prices had fallen –which,  of course, they might still do. No-one knows what share prices will do except insider traders. Pundits who knew would be living big in Monte Carlo or somewhere else swish rather than trying to get me to hand over a few dollars to buy tips.

Recently, some customers of the Commonwealth Bank lost money by accepting the shonky advice of some financial planners. There is a long list of investments which have gone bad and taken the life savings of people with them. Each time this happens there is call for government action to protect us from ourselves. I say protect us from ourselves because, all too often, people have invested their money on the promise of returns well above those generally on offer in the marketplace. Of course, if the investments were to pay off we would hear nothing about it. The hue and cry erupts only when money is lost.

Mix trusting human nature with assorted sociopaths who don’t give a fig about pensioners and their nest eggs and what do you get?  What you get is a guaranteed continuation of scams. There is little governments can do about this by setting new rules for the game. Whatever the rules, they will be circumvented. Sociopaths will not be denied and suckers are born every day.

 

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Comments [1]

  1. Geoffrey Luck says:

    Ah, Peter, the lessons of youth, hardly learned! I remember the troubles my boyish desire for a wrist watch caused me. The first time, aged about eight I was excited by an advertisement which seemed to promise a watch if one bought a packet of Cerelean, a breakfast food popular in the ’30s, but which my family never bought. I persuaded our local grocer to give me a packet on my mother’s ‘tick’ and rushed home to open it and dig frantically through the cereal. No watch! Before administering the razor strop, my father told me how foolish I had been, and gave me life’s first lesson on the statistics of lottery. But it didn’t stop my hankering for a watch. So a few years later I was a sucker for the advertisement in Brisbane’s Sunday Mail that a watch could be won by selling packets of garden seeds. This at least was honest toil. I wrote off and in due course a huge box of seeds – flowers and vegetables – arrived, to sell to earn a prize. I nearly wore out my shoes tramping the neighbourhood trying to sell them, and came to understand the desperation of generations of salesmen of encyclopaedias, vacuum cleaners and spices. With the support of family and friends who acquired unwanted, (and probably out of date) seed packets, I sent in the money and claimed my prize. It arrived – a cheap fishing knife I could have bought for a shilling. Those two experiences taught me something the complainants of later generations, the subject of your article, have never learned. If people try to sell you something – whether an object or a service – it’s principally for their benefit, not to do you a good turn. You need to be alert, highly critical and prepared to check out the deal, whether it’s inflation-linked bonds today or a macadamia plantation yesterday. Caveat emptor….but then, nobody is taught Latin any more.