It used to be fashionable for men to show each other their scars, and demonstrate that they had suffered more than the other guy, even if it involved a quick trip to the restroom to illustrate their end of the story. In the currently squeamish situation of children not being allowed to get any scars, with the threat of the Public Flogging of the Dad, I believe it will soon be fashionable to discuss how one got suckered buying various things. Here are five ways that you can build your database of stories that will be told one day.
Asking your banker where to invest
This is like asking a barber if you need a haircut. In fact, if you asked your banker if you needed a haircut he would likely say yes, and then work out a deal where the barber pays him 6%.
There was a time when bankers were staid, honest, hardworking people who would know who you are, remember your birthday, and know enough about your finances to give you proper advice. That breed has retired or been upgraded into management. And replaced by a bunch of customer-facing "relationship managers" who don't seem to have much in terms of actual financial training, other than being acutely aware of how much commission they make.
One of the best ways to get conned is to ask them for a "safe" investment avenue with "maximum returns". This is the point in the movie at which the subtitle says, in italics, "Sucker". With a broad smile, they will immediately produce for you a product where, after complex calculations, you will get 25% of your investment.
Until you read that sentence again, and you find that all you will get is 25% of your investment.
And that would be a good thing. In many cases, you will only know years later that you lost an entire year's worth of monthly "investment" cheques as commission paid to the "relationship manager", who has now found gainful employment elsewhere. The commissions are so complexly intertwined in today's products that after your initial outrage you will only want to admire them. After all, they use advertisements showing your children taking up that rock musician career you always wanted, just so you think that their insurance product will make your children rock stars; the only tiny problem is that by the time the kids are ready to become rock stars, the cost of the guitar has far surpassed whatever crumbs they left you after commissions. And your kids listen to absolutely horrendous music.
The amount of beer that can be enjoyed with stories like this… let us say you will only help grow the GDP of our country.
Going with the "Heard" mentality
I have this friend who seems to have made a lot of money investing in stocks. He keeps telling me the names of stocks that he buys and makes a ton of money. Like he bought Satyam at Rs. 20. And Infosys at Rs. 100. Or a Unitech at…okay, he never even bought Unitech. (Furiously erases lines from Demat Statement.)
Well, everything he bought turned to gold, so I should listen to him now. He subscribes to a tip service that only charges if you make profits. And then they tell you to buy 50 stocks every day, some of which will definitely make a profit, so they can bill me for as long as they want.
Recently a company named Atlas Copco delisted, at a price that was much higher what was expected, netting a 50% profit within a month. My friend's tipsters have now compiled a list of all such companies that have even a microscopic chance of getting delisted, and telling everyone to buy. I'll buy first. Then the rest of the lot will buy and the price will go up and get delisted at even higher prices. Never mind that many of these promoters won't even buy back at the current price, leave alone paying a premium.
And tell me, if I don't listen to other people, how will I know where to invest? Like, you know, my friend said the best car was this Maruti Versa, so I bought it even without a test drive or reading on the internet that they were going to discontinue the car. But then, Amitabh Bachchan advertised it, so it must be the best car around…
The Great Initial Public Offer
The heard mentality also goes with IPOs (Initial Public Offers). The latest IPO is linked to the <insert name of famous political family> and it will only go up. Look at the demand! Look at the Coal India IPO — it went up 30%! But don't look at the NHPC IPO which has gone down 33% even when the market's up in the interim. Don't look at all the random IPOs that have failed for investors, including the infamous precursor to the Great Indian Crash, the Reliance Power IPO. Where brokers used the Ambani surname like toothpaste* and convinced investors to borrow money against the tiny glimmer of hope of an IPO at Rs. 450 per share. Three years later, after a consolatory bonus issue to irate investors and a merger with RNRL, the stock languishes at Rs. 128, about 50% below what your eventual cost was.
* Not really. Many of them need industrial solvents to clean out the grime they chew.
No, if you have to get conned, a great way is to borrow money to buy into the next IPO. You'll either make money, or you'll have a tale to tell.
Forgetting the Invisible
I can now buy a 25-year holiday package — 1 week a year, at one of their 40 resorts, by paying a few lakhs today and a few thousands a year for maintenance. What I don't see is that I get tied to their properties every year. If all my favourite places are booked for the Dussehra Holidays, as they will be because everyone and their nephew have holidays then, I'm out of luck. I now have to choose between spending more money on a holiday I want, or go to a place I don't want just to "recover" my investment. (Himalayas in December!)
I'll buy a sugar company stock on the news that sugar prices have gone up. But I'll forget that in the past, the industry goes through cycles and that higher prices means more sugar will be produced and there'll be oversupply next year.
I'll forget the invisible, the unknown, the past. After all, the ignorant are ignorant of their ignorance. And the education, although expensive, makes for a great story.
I have just won an award of 1 million dollars from Microsoft.
(That is how the mail goes). To get that million, all I have to do is give my name, address, Pan number, passport copy, copy of bank account and a small "fee" for the actual transfer which is stuck in the customs department in Uganda. And then some more as a bribe to that official who needs to sign on the form. Oh, so they need a little more to clear up all pending issues, and perhaps if I could come down to, say, Nigeria, I might be able to meet with the local representative of Microsoft to clear up the matter.
Even if you discount the travel, it's incredible how many people fall for this kind of con job. And because it's so famous, and they can't admit they were conned, it's all under wraps. But soon, when it's fashionable…
Deepak Shenoy is a co-founder of MarketVision, a financial education site and writes at Capital Mind. You can reach him at deepakshenoy@gmail.com or @deepakshenoy.
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