The Faithful Fool By William Cate
Man is an emotional animal. The only folks that believe that we live in an Age of Reason live in Ivory Towers; desert islands or they pass State and Federal fraud laws. Governments, business and swindlers all manipulate the facts. There is little truth in advertising. Politicians spin the truth. Swindlers build houses of cards on generalities. But, it isn't the facts that convince the investor to lose their hard-earned money. People buy products for emotional reasons. Politicians get reelected more on their emotional appeal than their voting records. For swindlers, taking a pigeon is a two-step emotional process.
I've never met a swindler that I didn't like. No matter the factual merit of the pitch, the pigeon risks his or her money because they like the swindler. Liking someone means that you tend to trust that person. A factually review of a business plan is the pigeon only hope of avoiding the spider's web. Any investor, who doesn't have an equity finance consultant review a business plan before they write a check, is a certain loser. You can do a Yahoo Advanced Search for "Equity Finance Consultant" in the exact phase field and find someone to help you separate fact from emotion. Or, you can operate on your gut, write the check and achieve pigeon status. It's your choice. Don't blame the swindler for taking you because you have taken yourself.
Once the pigeon has written the check, a new emotion takes hold. It's faith. It's nearly impossible to break the pigeon's faith in the swindler or the scam. At this point, facts are meaningless when it comes to discussing the "investment." Many pigeons, to confirm their faith in their "investment" decision, become missionaries of the scam. They try to get their friends, family and business associates into the great opportunity. Often the pigeon's spouse doesn't share the pigeon's faith. The spouse risks divorce if they press the faithful fool too far. This state of pigeon true belief can last months or even years.
Eventually reality begins to set in and the pigeon moves from faith to desperation. As desperation grows, anger sets in. At this point on the emotional train to the poorhouse, the pigeon wants revenge. The fact is revenge is very costly and rarely recovers the pigeon's money. Filing a complaint with the regulators can't hurt. However, it seldom gets any action from the regulatory agency. It almost never recovers the pigeons' money. Filing a lawsuit is almost always a waste of time and a great deal of money. Winning in Court doesn't mean that you will ever collect a dime. The Cardinal Rule in investing is that an ounce of prevention is worth a pound of cure. If you haven't looked before you leaped into a scam, you are almost certain of being road kill at the bottom of the cliff.
Many angry pigeons think that they can blackmail the swindler into refunding their money by spreading the truth about the scam. Swindlers don't run scams so that they can refund the pigeon's money. Given that people make decisions based upon emotions, efforts to enlighten the public are ineffective. Everyone knows that Prime Bank Guarantees (PBGs) are scams. Yet, this scam regularly takes desperate business owners and entrepreneurs.
Pigeons aren't limited to individuals with more money than common sense. Banks, brokerage firms, mutual funds, hedge funds and pension funds are common victims of scams. In fact, anyone with money is a potential victim of a scam. Money managers are human and as such emotional animals. I've reviewed institutional investment portfolios and noted that over a third of the investments were swindles. The VP for investments response to my facts is always a comment that the group was likeable and that I'm wrong. After all, it's hard to move up in any business bureaucracy when you accept the fact that you have just lost tens of millions of dollars of the firm's money.
Before you write an investment check and join the ranks of the pigeons, have a knowledgeable person review the business plan and point out its factual flaws. If there is one material misstatement of fact in the business plan, don't invest in the company and lose your money.
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