If It Walks Like A Duck, Quacks Like A Duck, It's Probably A Scam
Here's a list of the 3 most dangerous things in the world...
- The Blue-Ringed Octopus in Australia weighs in at a few ounces, is about 5-8 inches but it's venom will paralyze your entire body in minutes and leave you dead of suffocation.
- Ischaemic heart disease (aka heart attacks) is the number one cause of death in the world
- Someone giving a guarantee of big money returns in a short time frame
Since the majority of the people reading this aren't spending their time walking in shallow Australian waters and hopefully are getting exercise to prevent heart disease, we are going to focus on the 3rd one.
Fast Money Is Dangerous Money
This year has been a public reckoning for crypto exchanges.
The digital gold rush the past few years had people like Tom Brady and Matt Damon doing endorsements and taking equity in companies whose valuations were more than established, revenue generating companies like Ford and Zoom after being around a year or two.
Every finance bro with half a brain had made a few thousand on some obscure crypto and bragged about it last Thanksgiving to their entire family.
Teenagers were driving Lambos and wearing Gucci from their lightning fast crypto gains.
Who could resist such temptation?
As Uncle Warren Buffett likes to say, "No one wants to get rich slow."
Duh! I've got yachts to sail and ski trips in the Swiss Alps to get to. I don't have time for 7% returns. I need 500%-1000% returns (as discussed in last week's newsletter).
Here's the thing. 500% returns are totally achievable. But they aren't usually achievable fast and they aren't available often.
If that old friend from high school hits you up after you haven't heard from them in 5 years and offers you a "sure thing" MLM scheme to make money...you run. Fast.
The Problem With Scams Is That They Work...
Ultimately, the problem with scams and get-rich-quick schemes is that they do work! For a select few that get in early that is. That's why people keep falling for them.
The proof is in the pudding...or in their new Porsche.
But these things usually only work for the first ones in and the fastest to get out.
Another problem is that many of these people that suck others in legitimately think that they're helping people. Their sincerety is key in selling others.
Another One Bites The Dust
A large crypto exchange called FTX just went bankrupt this week in a furious 48 hours.
Their founder went from an estimated $16B net worth at 30 years old to being worth a whopping $0 and facing jail in the time it takes the Earth to spin around twice.
How this happened isn't the point of this newsletter, but you can read a 45-second thread here if you want the details.
What matters is that this isn't unique to crypto. That's just the most recent perpetrators.
What matters is that people lost their life savings and many are ruined. Even more sad, people will die because of this.
But this happens in every modern country all around the world at all times. You don't have to go back very far actually for plenty of examples.
In 2008, it was the entire US banking system.
In 2000, it was the entire tech sector and the stock market.
In 1929, it was just too many get cocky from the "Roaring 20s" and taking so much risk that the entire system collapsed and plunged the USA into the Great Depression.
Financial disasters WILL continue to happen. The ones I just mentioned are very macro disasters.
But there are plenty of microdisasters that happen all the time like...
- Pyramid schemes
- Account hacking
- That "sure thing" investment your uncle told you about with a guy he knows
- Ponzi schemes
The mode of taking your money is always different but the signs are usually the same.
Big Ass Red Flags
It's worth noting that FTX was a legitimate business like many before it. They didn't scam people out of there money intentionally.
They engaged in reckless, speculative investing. They grew arrogant and got drunk on their success. Then, they made mistakes they couldn't come back from.
Here are some general red flags to look out for whenever you are "investing" money. These principles seem to be pretty universal of scams or reckless behavior.
- Guarantees of any kind of return over 10%, no one can promise significant returns unless something shady is going on, that's why investing is about risk
- Potential ROI over 25% on large amounts of money in less than 6 months
- The person who contacted you came out of nowhere, even if they are an old acquaintance or family member
- They pressure you into buying in immediately
- You have to give them a money order or cash
- They can't provide records of previous returns and the business isn't well-known
- The opportunity or business is not based in your country
Remember, sometimes you might get in and make money at first. Many scams will do this to hook you.
As soon as you get your money and investment back, they'll usually expect you to reinvest it all immediately. That's another red flag.
Stay vigilant. Keep hustling.
Until our paths cross again...
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