Click to listen to the latest episode of The Richards Report with Ben Carlson.
Ben’s recently released book, Don’t Fall For It, is pitched as a short history of financial scams, but it’s really much more than that.
On one level there’s the fascinating anecdotes of scams over the years, but on another it also examines the psychology behind why scams can be so successful on their targets. A lot of it comes back to behavioural economics: scammers tap into the irrational ways we usually reach decisions.
In this podcast episode I spoke with Ben about two trends he consistently noticed in his research for the book. Scams, frauds and charlatans have usually been successful:
When there’s hype around a new technology
In good economic times
Often with an exciting new form of technology comes a lot of hype. Many people are allured by this hype because they get excited at the prospect of getting rich quick. An example of how powerful the ‘get rich quick’ emotion can be: every year, Americans spend more money on the lottery than they do on movie tickets, music, professional, sporting events, video games, and books combined.
The example that came up time and time again as a form of new technology that created a lot of hype for investors was the railroad boom during the industrial revolution. Ben outlines the many failed investments from people assuming all businesses in the railroad industry were going to boom.
In recent times the internet has been a catalyst for people trying to get rich on the back of many businesses selling nothing more than hype. The examples of the railroad and internet booms have many similarities and Ben goes into further detail within the book.
Scams are often successful in good times, when our guard is often down and we’re not on the lookout for red flags. During these times FOMO (fear of missing out) is prevalent and influences us as we see people around us making money. I thought that this was quite interesting as, from an Australian perspective, it’s been almost 30 years since our last recession. Markets have performed well in recent times, but we need to stay disciplined when it comes to sound investing. As Warren Buffett once said: “Only when the tide goes out do you discover who's been swimming naked.”
Ben is involved with Ritholtz Wealth Management, a New York-based firm providing face-to-face financial advice to clients. However, Ritholz recognised the opportunity and need for digital-led advice that can complement their service with an improved onboarding experience and provide a solution for people who may not need holistic advice. They’ve partnered with Betterment (an American robo-adviser) to provide their own digital solution and we discuss how this partnership works.
Six Park is now partnering with advisers around Australia to provide a similar solution for advisers.
You can listen to my discussion with Ben on iTunes here.
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