One percent of the male population is a psychopath.
That’s according to Robert D. Hare, author of Snakes in Suits. He specialises in the field of criminal psychology.
Psychopaths don’t all keep people in their freezers.
But they lack empathy.
And they can be smart.
That’s a wicked combination.
This past summer, a man financially fleeced my friend Janet (I’ve changed her name to protect her identity).
He was probably a psychopath.
Most certainly, he was a brilliant con artist. I want to share her story, and the tricks that grifter used. This might help you avoid making the same mistake as Janet.
Arguably, the most famous book on the psychology of persuasion is Robert Cialdini’s Influence.
He wrote it to warn consumers of the tricks used against them. But his research could also protect you from a dangerous silver tongue.
Janet’s story echoes what Cialdini shares.
For starters, the man who conned Janet offered her an investment that promised huge returns.
He said he would “underwrite it” so she could never lose money.
He wasn’t just offering this to anyone.
It was a special deal.
And it had to be taken advantage of now.
Cialdini refers to this as “Scarcity.” It’s the lure of something rare…something that could disappear anytime soon…something just for you…because you're special too.
You might say Janet was naïve.
After all, you’ll never catch “Huge returns” and “No risk” in the same bed together. But great grifters rarely pitch a thing. This is what makes them artists.
They play a card trick on your brain to make you beg for what they have.
They begin by getting you to like them. They seek common ground.
In Janet’s case, she met a con man at a golf course. She plays golf. He plays golf.
Then, taking a page out of Dale Carnegie’s book, How To Win Friends and Influence People, he establishes rapport by getting her to talk about herself.
Janet eventually asks him what he does. “I work for a large London-based investment firm,” he says. That establishes what Cialdini calls, “Authority.” It provides a layer of trust.
He says, “I’m currently working on something special for high net worth clients…something that earns people unusually high returns with no risk at all.”
At this stage, the trap is set.
But he doesn’t continue to talk about the investment. Instead, he asks Janet about her job and her plans for the upcoming years.
Once again, he is getting her to like him. He’s also teeing her up for what Cialdini calls, “Consistency.”
Janet says she wants to pay off the mortgage on her property in Canada. She plans to sell it, move to a different city, and then retire to spend time with her aging parents.
The con man asks, “Are you getting financially close to that?”
Janet is now one step closer to chomping on that hook. If he can get Janet to reveal her goal, he can plant a seed that offers a solution. In other words, “Consistency” is when the stated goal aligns with a solution to reach that goal.
But once again, the con man is subtle.
“It would be nice if a few regular people could access this investment opportunity,” he says. “I was thinking about bringing that possibility up with my team. It isn’t really fair that only the rich can buy.”
At this stage, Janet is curious. If she could earn high, quick returns, she might be able to sell the investment and pay off her mortgage faster.
“Could someone get their money out at any time?” she asks.
“Well,” he replies, “Those who buy now can cash out mid-September.”
At this point, Janet asks, “Do you think I could invest with you?”
The mark is nibbling on the bait. But the artist wants her to bite down hard.
He says, “That would be nice, but probably not.”
Bernie Madoff said the same thing. In 2009, the former hedge fund manager was given a 150-year prison sentence for running the largest Ponzi Scheme of all time. Before he was handcuffed, he was famous for making people money.
But he told many interested people, “No, I won’t let you invest with me.”
That put Scarcity into overdrive.
We badly want what we cannot have.
Janet’s con man did the same. That’s why he didn’t have to convince her.
Eventually, she was practically begging to invest.
In doing so, she blinded herself to every red flag.
Red flag 1
She gave the artist money to buy shares in a company that supposedly trades on the London stock exchange. He said he was offering them at a huge discount to what the public paid on the open market.
Red flag 2
Here’s where the online world gets murky. You can find a single page website for the “company” he pitched. And that might look legit. But nearly the entire site is dedicated to investing in its shares.
It doesn’t explain, with any detail, what the company does. It doesn’t have links to the business’ latest financial regulatory filings. You could find this data on the website for any legitimate, publicly traded business. But this company isn’t real.
Red flag 3
Con artists put enough “truth” in their pitch to make everything look legit for a cursory Google search. The stock symbol he gave Janet represented a business that really does trade on the London Stock Exchange. But the name of that firm isn’t the same as the one he pitched. His isn’t real.
Red flag 4
There’s also a fake government registry for the company online. I couldn’t find a similar-looking government registry for any legitimate company.
Red flag 5
The con man offered Janet free, bonus shares if she could refer her friends to the investment. You can imagine what those are worth.
Red flag 6
As previously mentioned, Janet was told she would earn huge returns with the promise that the shares were “underwritten” so she could never lose money.
There are added layers to other cons. Sometimes, people invest in two schemes through the same con artist. The initial investment might be small.
The second tends to be larger.
The investor might redeem the first investment successfully, which tells the mark, “This works!”
Cialdini calls this “Social Proof.”
Now the victim is likely to share the news with their friends, while adding even more of her money to this new scheme.
After receiving that money, the con artist disappears or runs a Ponzi Scheme until the game implodes and they skip town with the spoils.
The world is full of devious rascals.
They aren’t all psychotic.
Some are simply blind to the odds against your success because they stand to profit from what they sell.
This includes investment-linked assurance schemes, hedge funds, private equity funds and sellers of actively managed mutual funds.
Stick to a low-cost portfolio of index funds, instead.
You’ll beat 90 percent of investment professionals and 100 percent of the cons.
Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.
