Some fun with numbers

[lukeplyr83]

I'm absolutely fascinated by the mechanism of scams. How people fall into them and why that particular person, at that particular time was susceptible to that particular scam.

One of the big contributors to falling into investment scams, is a lack of knowledge around what is a reasonable return on an investment. People hear that someone bought 1 Bitcoin for cheap and now it's worth $50k and think this is normal instead of a ridiculous outlier so I thought I'd show some numbers. This is based of a mixture of comments and posts on here over the last couple of weeks.

The S&P 500 is a good proxy for the stock market performance as a whole. Over the last 30 years the average return has been (roughly) 10%. If you took $1000, then after 1 year that would be $1100 total, after 2 years $1210 and so on. After 30 years you would have $17.5k (roughly). This ignores inflation and additional complexity to keep this easy. This in itself is a ridiculous return and anything promising more than this return needs to be looked at very carefully.

So to my point, I saw someone talking about a return of 60% in 3 months the other day so I did some quick maths...

After 1 year would be $4096, 2 years $26,843, 5 years $7,555,786. By 7.75 years you would be a billionaire. By 10.25 years you would be the richest person on planet earth. By 30 years the number had 9 commas and was so large I don't know what it is. I think it is octillions but I genuinely had to google that. I've never seen a number that large outside of a scientific calculator in physics class.

My point is, if someone genuinely could get these returns, why on earth would they tell you about it. They could make themselves the richest person who ever existed with just $1000 but they are selling you an investment of X dollars out of the goodness of their heart. The best thing you can do is stop and ask yourself, if someone genuinely has a strategy to beat the market, why would they not just do it themselves? Why tell anyone or sell anything? The answer is they must be getting more from that sale than their actual return.

 

[vladimir30]

@lukeplyr83 The thing about scams is that they don't need everyone to fall for them, they just need the 0.00001% to fall for them.

If you're thinking this critically about them, then you were never their target to begin with.

 

[resjudicata]

@vladimir30 That's true of the obvious scams but there are still some bigger ones still out there.

The prospect of easy money and watching other people get rich (FOMO) makes us want to believe in the emperors' new clothes rather than ask questions such as will $70,000 TSLA battery cars really replace all petrol cars soon, what effect Tether (which refuses to be audited) has had on Bitcoin, or should I overpay for NZ houses when scammers like the RBNZ are promising interest rates will stay low before raising them quickly in a rug-pull.

 

[amos_6eight]

@lukeplyr83 My uncle fell for scams, not once, not twice .... wait for it .... but 3 times. THREE times a university lecturer, educated to PHD level and beyond, published and cited countless times, fell for stupid scams. Twice he fell for a random phone call and the last time he went to a property seminar where he got taken as well.

I suspect a low level of undiagnosed autism in him anyway where he takes people at their word. The way he explains the first one is that the person on the phone asked him if he wanted to make money. Obviously, the answer to him would be 'yes'. For me, I won't pick up the phone or throw it down in your ear immediately.

They're wealthy anyway (no thanks to him), but he's now on an allowance from his wife with no access to their money or able to make any decisions with their money.

Rather embarrassing for a 68yo guy that's one of the most intelligent, well-read people I've ever met, with not a single drop of common sense.

 

[sophiang]

@amos_6eight Could be worse I guess

https://www.nytimes.com/2013/03/10/...i-model-and-the-suitcase-full-of-trouble.html

Edit: sorry didn’t realize it was behind a paywall was using my free viewing for the month.

 

[rachelcolquhoun]

@sophiang Summary of the article behind the paywall:

"The article narrates the unfortunate story of Paul Frampton, a physicist from the University of North Carolina who was detained in Argentina for drug smuggling. Frampton was tricked into carrying cocaine in a suitcase by a fraudulent online persona named Denise Milani, who he believed was his Czech bikini model girlfriend. The piece delves into Frampton's background and achievements as a physicist while exploring his vain character. He spent eight months in prison awaiting trial and claimed he had no knowledge of the drugs. Though his defense team argued that his absent-mindedness made him an easy target for the scam, he was convicted and sentenced to four years and eight months in prison. The article highlights the dangers and perils of online dating scams and calls for awareness when using the internet to avoid similar incidents."

Number of words in the article: 5585

Summary by ReaderMax

 

[hibernos]

@sophiang Here is the great Tim Harford about this one: https://pca.st/episode/73b5bce5-d817-402c-99f3-172c177ece01

 

[joshuac3000]

@sophiang Paywall

 

[lovinganimals]

@lukeplyr83 You can just boil it down to greed at the end of the day. No one hand on heart thinks a 60% return in 3 months is legit. The issue is scams where the rate of return is slightly higher than market. That’s the sweet spot for scammers.

 

[kwild]

@lovinganimals I dunno about that. I have an friend in their late 50s, not tech-savvy, who saw a friend of theirs on Facebook (whose Facebook account had been compromised) share and recommend a scam advertisement (along the lines of "send us $250 and we'll double your money in 3 months through the magic of cRyPtO iNvEsTmEnT"). Classic older-generation-on-Facebook situation.

Fortunately my friend had enough nous to ask me what I thought of it, since she knows I know about these things. I took one look and said "your friend's Facebook account has been compromised and is being used to push scams". She insisted that that couldn't be the case and that if her friend was recommending it it must be legit. I really had to put some work into that conversation before my friend agreed to send an SMS to her friend checking what was up. Of course, yes, the Facebook account had been compromised.

Point is, nothing about that situation had set off any alarms in my friend's brain. She was just excited about the opportunity to double her money on a small investment. The fact that her friend apparently pushed the scam ad was the killer.

Even people who you'd meet and think were normal functioning members of society can be pretty dumb in these situations. Scammers leverage patterns of perception and trust that bypass the natural suspicion filters of many people, particularly older people who aren't used to how the internet has changed things.

 

[amos_6eight]

@kwild I'd just leave her and let her do it.

Not out of maliciousness, but $250 for an education in common sense is a cheap price to pay, and could save a lot of pain down the line.

 

[kwild]

@amos_6eight

I'd just leave her and let her do it.

What the hell, dude, did you miss the fact that she's my friend and she asked me for help checking this out?

I'd hate to be your friend.

$250 for an education in common sense is a cheap price to pay

Or I could just, y'know. Explain the situation to her, like I did. Which cost $0.

 

[theologyofone]

@amos_6eight Problem is sometimes they will double the $250 as a proof / confidence boost for the larger goals.

That, or just add you to known victims to target with another scam.

 

[abelievingman]

@lovinganimals I'd say there are a few fools who hope it is legit and get suckered in

 

[lovinganimals]

@abelievingman Yeah and they’ll all swear black and blue that the bank etc should have stopped them.

 

[catholic_from_paris]

@lovinganimals That was Bernie Madoff’s playbook. Slightly higher returns than the S&P500 at 10% pa but not stupidly high as to arouse suspicion.

 

[melissauk]

@lovinganimals 60% in 3 months its deff possible , but also , whats the 12moth return, the 3-year return and the 5-year return.

prob just got lucky, my US large growth is 23% for the last 12mths.

 

[jonathan_james]

@lukeplyr83 One thing I've noticed from crypto grifters was how they used public distrust of traditional financial services (i.e. banks) to convince people they can earn ridiculous returns.

After all if a bank is offering 2% interest on their term deposits and this bloke is offering 180% return on his crypto coin, you can either conclude that the bank is ripping you off or the crypto guy is lying to you. If you are predisposed to hating banks then you are more likely to buy into the greedy bullshit at that moment.

 

[jermyn]

@jonathan_james I suspect a good chunk of people who invest into these crypto scams are fully aware that these are terrible investments that are likely going to become worthless pretty quickly. But they invest in some shitty new coin that has been hyped by influencers because they are predicting a bunch of other people are going to do the same thing and there will be a rapid increase in value early even if the whole thing gets rug pulled. So scam or not, they can see the potential of making some quick cash if they time it right. You could imagine someone trying the same thing with something they know to be a Ponzi scheme.

Its like the old doubling schemes you would see in games like RuneScape and Eve- send me money, and I'll send twice as much back to you immediately. Only the biggest idiot will think they won't run away with your money when you send it. But some people still do so because it's really a game of chicken - you send a small amount over they will double it for you, if you send a large amount over they will take, therefore you can possibly make some quick cash if you can correctly guess what their cutoff is.

 

[sophiang]

@jonathan_james Agreed, this time last year when the sub had people promoting some stable coin paying 20% - their entire argument was that banks only pay you 2% and use fractional reserve banking to make 100% plus. Not sure whats that got to do with stable coins that shouldn't be using fractional reserve by definition but whatever...