There are people out there who want to be rich—without the risk, the sacrifice, or the delayed gratification necessary to accumulate such wealth.
But you and I—logically—do not belong to that group. Of course not!
Well, in my case, that statement is a tiny bit of wishful thinking and overconfidence.
- We all know that if something sounds too good to be true, it probably is.
- We are aware that in investing, the tortoise usually outperforms the hare.
- We have heard that consistent double digit returns—above 15%—are statistically very unlikely.
- We learnt at school (and in life) that nobody can predict the future. It’s really a guessing game.
I was aware of all the above, nevertheless, I succumbed to that temptation where huge rewards in the future were promised, in exchange for handing over hard earmed money immediately.
And I was also guilty of falling for some penny-stock hype, but I am happy to say: was guilty.
Although I really shouldn’t have, having known this fact (among countless others) for a long time:
Since 2009, the Motley Fool has tracked over 200 “get rich quick” stocks—mostly penny stocks— associated with a hot fad and hyped by promoters. As a group, these stocks proved woeful. And during an investment competition, over 93% underperformed the market, although the robotic strategy of betting against these hyped penny stocks, resulted in outperforming over 99.99% of nearly 75,000 players—on their Stock Market Simulation Game.
Allow me to tell you from experience that this does not work as only a few “insiders” can make money with penny-stocks, whereas, the rest of us are “outsiders” and merely the contributors in making that Ponzi-Scheme successful.
Luckily, we all have a healthy natural aversion to losing money and it’s what helps us to avoid falling for financial scams (think Penny Stock Touts and Nigerian Princes, etc). It’s also what keeps us from over-spending and helps us to save for a rainy day.
Additionally, it also makes us receptive to logical arguments of this nature:
Simple arithmetic suggests (and history confirms) that the winning strategy is to own all of the nation’s publicly held businesses at very low costs. Because in a financial world of marketing, exploiting your fears and emotions, and putting your trust in the “relentless arithmetic” of broad index fund investing is the smartest thing you can do.
Investors who aren’t satisfied with a good plan— like Indexing—may strive for something they hope will be the “best”. Although, more often than not, that path’s wake would be filled with more tragedies than successes.
So you might want to try to avoid seduction and stay away from investment schemes and scams that tickle your greed button. Stop, think, and then let your rational, logical mind decide. In daily life, critical thinking is our only defense against being fleeced.
Don’t be a bug in search of a windshield!
“In school, you’re taught a lesson and then given a test. In life, you’re given a test that teaches you a lesson.” — Tom Bodett, humorist
“The first principle in life is that you must not fool yourself—and you are the easiest person to fool.” — Dr. Richard Feynman, Nobel Prize winning physicist
“The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard