The Appeal of Financial Scams
Since 2021, Americans have lost $2.7 billion in scams from social media. More than half of the reported lost money went to investment scammers.
- CBSNews.com, October 6, 2023
If you spend any time on social media, you're undoubtedly going to encounter posts claiming to offer ways to make 10% or more per month with little risk, time, or talent.
This note serves as a reminder that these promotions are not real; investing doesn't work like that.
A person who could compound an investment at 10% per month would turn one hundred thousand into one hundred million in 6 years. By year 8, they would be a billionaire, and by year 15, they would become a trillionaire. The hypothetical person who has developed such a money-making system doesn't need to sell it to others.
But these aren't the only scams on social media. There are also more pernicious life insurance promotions that look like this:
I say more pernicious because life insurance is a real thing, offered by real companies, and often serves an important purpose. This instills a certain level of trust, making a person more likely to invest bigger dollars. However, no life insurance product does what these ads claim it does.
Simple vs. Complex
Promoting a simple strategy for long-term equity investing is difficult since simplicity is often hard to distinguish from cluelessness.
"This idiot is completely ignoring all the bad stuff on the horizon!"
Complexity, on the other hand, gives a comforting impression of control.
"I’m going to use AI and algorithms to analyze charts, trade quickly, evaluate hundreds of positions, and be in the market when it is going up and short the market when it is going down. This strategy will protect the portfolio in any scenario!"
This complex strategy sounds like a better approach. However, as Morgan Housel wrote in his book Same as Ever:
"A truth that applies to almost every field is that there are no points awarded for difficulty. It’s possible to try too hard, to be too attracted to complexity, and doing so can backfire spectacularly."
This is particularly true for investors. Long-term success requires the patience and fortitude to stay the course despite a constant stream of voices shouting reasons you should abandon your strategy. This is always going to be true. Being a successful investor is simple, but there are no shortcuts, and it is never easy.