The art of the con - lessons from the Cazique, or prince, of the land of Poyais

The conman who pulled off history’s most audacious scam

Excerpt:

Con artists have long recognised that persuasion must appeal to two very particular aspects of human motivation – the drive that will get people to do something, and the inertia that prevents them from wanting to do it. In 2003, two social psychologists, Eric Knowles at the University of Arkansas and Jay Linn at Widener University, formalised this idea by naming two types of persuasive tactics.

The first, alpha, was far more frequent: increasing the appeal of something. The second, omega, decreased the resistance surrounding something. In the one, you do what you can to make your proposition, whatever it may be, more attractive. You rev up the backstory – why this is such a wonderful opportunity, why you are the perfect person to do it, how much everyone will gain, and the like. In the other, you make a request or offer seem so easy as to be a no-brainer – why wouldn’t I do this? What do I have to lose?

They called the juxtaposition the approach-avoidance model of persuasion: you can convince me of something by making me want to approach it and decreasing any reasons I might have to avoid it. According to Columbia University psychologist Tory Higgins, people are usually more likely to be swayed by one or other of the two motivational lines: some people are promotion-focused (they think of possible positive gains), and some, prevention-focused (they focus on losses and avoiding mistakes). An approach that unites the alpha with the omega appeals to both mindsets, however, giving it universal appeal – and it is easy to see how MacGregor’s proposition offered this potent combination.

He published interviews in national papers, for instance, touting the perks that would come from investing or settling in Poyais. He highlighted the bravery and fortitude that such a gesture would demonstrate: you wouldn’t just be smart; you would be a real man. The Scottish Highlanders were known for their hardiness and adventurous spirit, he wrote; Poyais would be the ultimate testing ground, a challenge and gift, all in one. He pointed those who needed more convincing to a book on the virtues of the small island nation, by the elusive Thomas Strangeways (actually MacGregor himself). His prospectuses enticed the public with their masterful promises, their lure of opportunity, their appeal to scarcity, their admonitions not to let this perfect moment pass by.

..... Psychologist Robert Cialdini, one of the leading experts on persuasion, argues that six principles govern most persuasive relationships:

1. reciprocity (I rub your back, you rub mine)
2. consistency (I believe the same thing today as I did yesterday)
3. social validation (doing this will make me belong)
4. friendship or liking (exactly what it sounds like)
5. scarcity (quick! there isn’t much to go around)
6. authority (you seem like you know what you’re talking about). Consider how many of those MacGregor used instinctively.

1. Reciprocity: you invest with me, and I give you the opportunity of a lifetime – a life so wonderful that no one else can give you something comparable.
2. Social validation: you will be the most Scottish of Scotsmen, the most respected of people, a pioneer and role model.
3. Scarcity: act now, for this is not an opening that will remain. If Scotland doesn’t sweep Poyais up, someone else will – and there goes the nation’s one chance at colonial greatness.
4. Authority: Dr. Strangeways surely knows that of which he speaks. If you don’t trust me, then at least trust him – though why wouldn’t you trust me? After all, I’ve published in the best media of the time.

Comment: Wiki article . All images from the Wiki article except the graph below. Source.

Another investor scam

Investors ignored their suspicions about troubled pilot

Excerpt:

"We had this site so we could all talk to each other for advice on retirement options, company news and mainly what to do with our money," said Joe Mazzone, 57. The Auburn, Alabama, pilot was looking for the right person to invest the nest egg he and his wife had spent decades growing.

"Go with Marcus, that's what I kept seeing. You could trust this guy. He was a pilot, and he understood us," said Mazzone, who gave Schrenker several hundred thousand dollars. "Talk about a regret."

Schrenker was found Tuesday night at a Florida campground with deep cuts to his wrists in an apparent suicide attempt. He had been on the run from federal authorities for three days.

The 38-year-old Indiana financial adviser is accused of trying to fake his death Sunday by making a bogus call to air traffic controllers that the window on his six-seater plane, which he scheduled to fly from Indiana to Destin, Florida, had imploded and he was bleeding, police say.

Schrenker had actually switched the plane to autopilot and parachuted out of the aircraft. The Piper PA-46 crashed in the swamps of Milton, Florida, not far from homes. No one on the ground was hurt.

Schrenker has been charged with unlawful acts by a compensated adviser and unlawful transaction by an investment adviser. He could face more federal charges. He is being guarded at a Tallahassee, Florida, hospital, and the court has issued an arrest warrant and set bail at $4 million cash. It's unclear if Schrenker has retained a lawyer.

In the months before the alleged stunt, the state of Indiana was investigating Schrenker on fraud allegations, and a Maryland court issued a $500,000 judgment against a company listed in his name. His wife had filed for divorce on December 30.

Comment: Like Tom Petters & Bernie Madoff

Bilked by "the Grand Falloon"

The Rules That Madoff’s Investors Ignored

Excerpts:

Delivering 20 percent every year for 30 years would have been too hard to believe (and pay out) while 5 percent would have sent most people searching for more elsewhere. Returning 10 to 12 percent year after year was a stroke of genius: it was within the realm of possibility, if just barely.

The point is that the mistakes his investors made are ones that anyone could make. While the stories of so much money lost are tragic, none had to occur. Much of this loss could have been prevented if people had questioned what they were doing.

1. THE 10 PERCENT RULE: ... The most basic book on investing will tell you never to put more than 5 or 10 percent into any one investment, particularly one meant to preserve wealth.
   
2. CONSISTENCY IS BAD: ... There are too many variables that inhibit being great on a regular basis. ... Good investment advisers plan for a modest return over the years. They know that one year they will get you 11 percent, the next year 6 percent and the year after that lose you 2 percent — so count on 5 percent. Mr. Madoff’s returns were too good to be true, but no one wanted to believe that.
   
3. THE GRAND FALLOON: ... just because someone is a good golfer does not mean he should be trusted to invest your money. Private bankers are forever telling their clients not to try to get into someone’s hedge fund just because you enjoyed their conversation on the course — or, worse, want to play with them again. Like taking care of your health, picking an investment adviser should be done with the utmost rigor.
   
4. ‘DON’T ASK, DON’T TELL’: ... But nothing in which you are putting millions of dollars is so wonderful that it cannot withstand scrutiny.
   
5. PUT MONEY IN BUCKETS: ... follow__ the popular wisdom of private bank investment strategists: divide your money into buckets to insure the money you need to live on will always be safe.
   
   

Comment: Madoff ought to be in jail .. not in house arrest. "THE GRAND FALLOON Kurt Vonnegut coined this phrase in “Cat’s Cradle,” and never did it have a more devastating application than in the Madoff scheme. In Vonnegut’s world, a grand falloon was a false association mistaken for friendship — two people from the same town, same university, same company meet somewhere and believe that coincidental connection has significant meaning."

Don't look to me as any kind of investment guru because I am not. I have made some money and lost some money. My rules are: 1.) Consistent investing; 2.) Diversity (Mutual funds, EFTS, savings (CD's), some coins); 3.) Asking tough questions and looking for full accountability.

"What am I going to tell my wife?"

Ministers, nonprofits among the latest investors to sue Petters

Excerpts:

More than 100 pastors, ministers and nonprofit organizations have joined together in a federal racketeering lawsuit filed Friday in Minneapolis against Tom Petters and some of his associates .

"We've had a whole line of people going through our office the past 10 days," said Carolyn Glass Anderson, an attorney with the Minneapolis law firm Zimmerman Reed, which filed the case.

"Their lives really have been devastated," Anderson said. "Several of them are selling their homes and moving into their kids' basements."

Some clients are "pastors who've been making $40,000 a year for 40 years, and they don't have Social Security, and they had all of their life's savings in this," Anderson added. "And one guy was in tears and he said, 'What am I going to tell my wife?'"

Comment: I feel very sorry for those who lost $$ with Petters. But it is important to invest wisely and to use reputable investment advisors. See earlier post Suckered by Petters