Scams - How to recognise them?

Scams are all over the place. This article tries to help you identify the most famous patterns.

There has always been scammers since the dawn of money. But still people fall for it, that’s because they get distracted by the people, the methods etc., In this newsletter, I give you a strategy to recognise patterns and not the scam itself.

Pre-Read

The Plain Bagel is an excellent Youtube channel. Would highly recommend subscribing to it. There are only a few Youtubers who publish quality content and have not sold their soul to the algorithms.

Focus on the Message, Not the Messenger

Whenever you see investment advise, always focus on the message. This pretty much applies to other walks of life as well, but particularly important in the finance world as most scams is just a repeat of older patterns. If someone says, x investment will double your money in 1 month then why is he/she revealing such a goldmine of information as they can literally become the richest person on the planet in just a few years.

Read History

There are just so many movies that were taken to understand how scams work. Of course, some of them are sensationalised for the movies but it will help you understand the patterns and how they emerge. I will do a separate newsletter article on what finance shows/movies to watch specifically on scams. But listing down some below.

• Scam 1992

• The Tupil Bubble

• The Wolf of Wall Street

• The Big Short

Stick to Core Principles

To quote Warren Buffet -

"Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1."

It’s better if you don’t invest money and stick to fixed deposits of savings accounts until you learn about investing. Earning back lost money is significantly harder. So it is ok to lose money in the interim to inflation until you have learnt about investing. Stick to core principles like investing in index funds, sovereign guaranteed instruments etc.,

Investing is not a race

This is not directly linked to a scam but people make the most mistakes when they are desperate to make money. Don’t be. Work hard but don’t be desperate. Channelise that desperation in learning and working hard. Investing is not a race. You are not here to beat anyone in returns or in corpus. Investment is for yourself and to become financially independent.

Ignore Noise

This is perhaps the number one rule. The media is full of noise i.e x stock is increasing, y stock is declining etc., If you are a long term investor, the best you can do is to invest in fundamentally strong stocks or better to invest in index funds and stay the course. Sometimes taking no action can help avoid scams and losing money. Investments are supposed to boring. It compounds slowly over time and more like watching a tree grow. Stop meddling with the growing tree.

Until next time.