Oct

26

I have recently been exposed to the wiles of many a con man. I wonder what revisiting the subject of the techniques of the big con could teach us about the current situation in the markets. I think of such things as leaving the victims fearful of claiming restitution at the end, and the imprimatur of the respected elder at the beginning. What is missing to the layman is the degree of complicity of the victim. What do you think?

Scott Brooks responds :

High level cons: Con men seem to prey on issues that the Victim has, at least, a peripheral knowledge of or experience in. This allows a con to speak to the Victim and use words and situations that the Victim can relate too.

The key to this is it allows the Con to mix in just enough truth to get the Victim to agree with the con on some points, thus showing that Victim that the Con knows what he is talking about, as well as add an air of expertise to the Con's resume. The "truth" that Con mixes in are the "white swans" that the Mark so desperately wants to see.

This is a Con's ultimate fantasy, because the Mark will then do most of the work to build up the Con's resume in his own mind as the Mark see's a world swirling in white swans and purposefully ignores the black swans.

The con shows some small and perfectly plausible area/idea that has not yet been exploited (the exploitation point or EP). If the Con can build up Mark's confidence in him by supporting the exploitation point with some sort of 3rd party reliable material, then the Mark will further build up the Con's "Cred's" in his own mind. Even if the 3rd party material is only tangentially related, it will be viewed as more white swans by the Mark.

The Con will then play up the profit potential of the EP and get the Mark very excited. When he plays it up, he has to be careful not play it up too much……..his figures have to be appealing, but can not sound, "too good to be true". If the Con is smart, he will then "play down" the profit potential that he just built up to show that he's not some "pie in the sky"over seller and that he has a reasonable outlook on the profit potential….i.e. "Now, I know those numbers are exciting, but let's look at the downside….." He then shows what appears to be a reasonable low end profit potential.

The Con will then spring the trap…..and spring it with a sense of urgency.The con will usually request a reasonable amount of money that the Mark won't have any trouble accessing and can quickly write a check for….BUT…..the money will be needed within a short period of time…usually right there on the spot. If the Mark balks, the Con will back off and let the Mark tell him when he can have the money available. Lets say the Mark says that he can get the money to the Con on Wednesday. The Con will usually make a reasonable request and say, "I can only hold out until Tuesday. So can I get it on Tuesday instead of Wednesday"

The Con will then usually say something like, "Okay, great, let's do it on Tuesday. Now the banks don't post any deposits after noon for that day, so I need to make deposit before noon on Tuesday.Can I come by at 10 am on Tuesday?" The Con will then usually treat the Mark to lunch to pick his brain about the Mark's idea's about how to move this forward and solicit any advice the Mark can give, based on his extensive knowledge of (whatever the Mark has extensive knowledge of) and how it might apply to the EP (which the Mark has a peripheral knowledge of). More meetings will be scheduled to go over "details" between now and the day the check is to be picked up so the Mark will feel involved and and excited about the opportunity. At these meetings, the Con will play to Mark's ego and let the Mark brag to the Con that he has lots of money…and the Con will then drop very subtle hints that more money may be needed in the future. By now, the Mark feels very good about the Con and feels that they are closely bonded due to this "insider secret" that they both share. The Mark will want to enhance this feeling of closeness as it is the "white swan" in their relationship and allows the Mark to ignore the "black swans" that he needs to be seeking that are sometimes screaming but often whispering,"you're being conned". When the Con picks up the check on Tuesday morning, he arrives a little early, gets the check and has a refresher "rah, rah" meeting with the Mark and gets the Mark even more excited…..the Con will usually have some"extra" good news about the EP that has just come to his attention and it will likely involve some sort of 3rd party expert saying something that is related (usually in a very tangential manner) to the EP that the Con displaying the Mark on.

The Con will then return as many times as he can to get more and more money from the Mark, always playing to the emotions of the Mark. Even if the Mark begins to have doubts, he'll not want to waste all the money he's put into the EP so the Con will be able to get money from the Mark even after the doubts begin (the mind of the Mark says "I know I'm $200k into this thing,so investing another $20k is not that big of a deal if we can pull this off.Heck all good things take time and are little harder than we initially expect"). This goes on until the Con can't get anymore. There are many more steps and an infinite number of variations on the"Con/Mark" relationship. But many of those relationships contain most of the factors that I've listed above. 

Bill Rafter comments :

Bill RafterIf one were to tell “others” (i.e. not in our immediate circle of market watchers) that the market was pulling a con on us, they would think us more than a little paranoid. However if the market is the digested knowledge (and emotions) of its collected population, then thinking of it as sentient is not too absurd. Once we have accepted that, however, it’s a fine line between what comes after and paranoia. What is the first concern of a sentient being? Self-preservation. Now for a market to keep itself alive, it can never allow any one participant to gain such an advantage that the participant wins all the money. Should the latter happen, the market would be destroyed. Thus the market’s future existence depends on its not letting anyone get an insurmountable advantage. Consequently, there can never be a “Holy Grail” or flawless indicator. Perfection in trading can only be defined in statistical rather than absolute terms. Once you realize that you find it easier to live with your mistakes.

Dr. Rafter is President of Mathematical Investment Decisions, a quantitative research consultancy

Alston Mabry comments :

In considering the elements of a con one is inevitably drawn to the rich genre of American Movies, which for the most part have glorified the con man. David Mamet gets a lot out of the con. See:

1 House of Games

2 Homicide

3 Heist

4 The Spanish Prisoner

5 Spartan

6 Redbelt


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9 Comments so far

  1. Matt Johnson on October 26, 2009 5:28 pm

    I've experienced a lot of cons, even from people didn't think they were cons. For example, two very close people to me are PhDs in economics, and they thought they understood the markets, and offered me much advice in trading, most of it, if not all of it was wrong.
    The folks I worked with on many a trading desk offered advice and 'wisdom' on trading, again, as dealers, they knew very little.
    The big hedge fund manager has an above average year in 2008 (like one fund out here on the coast), then the manager starts blabbing in Davos about how the Euro will get crushed in 2009 due to massive deflation (this was euro at 1.2600). Now, we don't hear about this fund and how their doing… Con supported by the media.
    There is SO much con out there, I found the best thing to do is ignore EVERYONE and do MY own homework, make MY own mistakes, take responsibility for them, and keep at the game. I started in this business in 1988, I really didn't learn this particular lesson well until the mid-1990's, which after a LOT of homework, I began to make real money.

  2. Jesse Liverspots on October 26, 2009 9:59 pm

    Cons are plentiful in the arena of penny stocks. The SEC warns us of this in their list of things to watch out for.

    Penny stock scams…. Google this, C&H Capital Engaged to Assist.

    Apparently, he's been currently working this year's model.

  3. Steve Leslie on October 26, 2009 10:27 pm

    Con movies, not necessarily in order

    The Sting
    The Flim Flam Man
    The Grifters
    The Hustler
    The Color of Money
    Hard Times
    Oceans Eleven
    The Thomas Crown affair
    The Cincinatti Kid
    Maverick

    That should keep you busy for a while.

  4. Steve Leslie on October 27, 2009 10:02 am

    The Art of the Con requires several parts. First is a willing participant or Mark. This is someone who has a particular vulnerability or weakness. There can be many that one might exploit. Here are a few. The list is enormous:

    Greed, Vengeance, Pride, Loneliness, S_xual, Arrogance, Anger, Insecurity

    In the Sting, Paul Newman tries to figure out what Robert Shaw is susceptible to. His was gambling. Thus one may suggest that research is the first step Next set up a situation where the Mark feels comfortable. This is the plan. Location marketing etc. Study Madoff or Stanford two of the greatest con men in history. Third is the execution. The con puts the plan into motion. Fourth is the exit strategy. A properly executed con results in the Mark not even knowing what happened to them. This is the essence of a con. As PT Barnum so elequently stated " There is a sucker born every minute." And Canada Bill Jones "Some people consider it a crime to take money from people, I consider it a crime not to."

  5. reid on October 27, 2009 12:57 pm

    A useful technique to combat con men?

    “Beware of “The Chiseler”

    From: Mr Schmooze

    Monday, October 26, 2009
    This week’s topic: . . .
    We have all run into professional “chiselers” . . . experts at asking for ever more service for the same price. It’s actually a highly refined technique taught in most negotiating courses.
    “Chiselers” thrive on weakness. If they sense any weakness in your position, they will exploit it. Conversely, if you are delivering good service at a fair price, or remain certain about your value proposition, they will usually back off when they do not smell fear.
    Often, a good antidote against chiseling is to quietly re-state your case, then “be quiet.” The silence is awkward, but it works in your favor because the “chiseler” has no feedback to exploit.
    Seller: “And so our fee is aligned well with our earlier discussion and scope of work.”
    Buyer: “I’m just asking for five more units . . . it’s not a big deal.”
    Seller: Silence (Despite the impulse to keep explaining, which shows weakness).
    Buyer: “Well . . . what do you say?” (Buyer has now blinked first . . . your hand is strengthened).
    The pregnant pause is a powerful weapon because it puts pressure back on the buyer to make his case for chiseling, which is probably weak anyway, and takes the pressure off you momentarily, to defend, which looks weak. Chiseling is a game of pressure timing . . . have the patience and discipline to face it down.

  6. Alice Allen on October 27, 2009 10:48 pm

    Victor's question:.."What is missing to the layman is the degree of complicity of the victim. What do you think?"

    Growing up, I had a reputation of being gullible, appropriately, as it turned out. I believe I've learned the right answer to this question the hard way across many circumstances. Analyzing these situations, I have concluded that I became a 'victim' when I failed to remember:

    1. There's always something important that I don't even know that I don't know
    (e.g., as when I started trading before I identified the importance of volume indicators)

    2. It is hard to escape seeing exactly what I want to see…at least at first
    (e.g., seeing a stock or option price streaking up/down and overweighting all the reasons it should continue indefinitely)

    3. An old Japanese proverb, "the bigger the front, the bigger the back"
    (e.g., the better something looks at first, the more I invest, the more to lose)
    (e.g., the better the sociopath at playing the 'good guy', the more dangerous)

    When I realize I'm being conned, I open my eyes, become an observer, and take notes. Then my best strategy is to jump out before I'm expected to. That means to sell/buy back at a profit almost but not quite at the peak, even though I know there's a chance it will keep going in my direction and maybe the con wasn't a con.

  7. Ken Drees on October 29, 2009 8:37 am

    “What is missing to the layman is the degree of complicity of the victim.”

    To close oneself down and to put up walls, levels of security to avoid the painful experience associated with being tricked, duped or conned–eventually makes one a type of prisoner. A prisoner by one’s own hand, always looking out for the trickster. What is this person’s game; what do they want from me?

    I say take risks, trust yet verify, live the human condition forgive your insidious enemies and learn from the experiences. Trust in your fellow man and when hurt deeply, pull out the dagger and move on as before.

    Cons not only have to do with money being lost. You can be conned emotionally, spiritually and morally/ethically.

    There comes a point in every con where the victim is asked to invest in earnest: money, commitment, take it to the next level, etc. This is the critical point where one should use business tactics and remove emotion from the equation.

    Use the pause button if you cannot decide. If the response is “we can’t wait, this deal will be gone; you don’t love me do you?”, then waiting is probably best. None of this is applicable to people under 25 years of age.

  8. vniederhoffer on October 29, 2009 8:54 am

    of course, about the best practical text on deception is ben greene's horse trading. this is recommended by Martie Shubik as the best book that traders should read. I wrote about a book on impostors with the collab many years ago that had Lobogola and the man who rode the turtle figured prominently in it that is also a good source. the distinction between the impostor that couldn't get the credentials and is trying to do well, and the one that's just out to rob you is important. one wonders where the interior personage fits in on this. would the appellation "Dr" have prevented him from the appellation of "shotgun dating service" vic

  9. douglas roberts dimick on October 29, 2009 11:58 pm

    [Here is correct version. Please disregard first submission. Thank you. Sorry for the error. dr]

    It Will Tell “The Tell”

    After struggling 9 years to get my day in court, which amounted to a 2 1/2 hour trial in August 2004, resulting with the judge awarding my family the max upon his finding of illegal conversation by a mother and son team, and now streaming within the related, two (probate and civil) collection actions, I offer a one-word answer:

    TIME

    As players within gambling domains look for the hidden truth (or Tell) of their probabilities (or possibilities) for success and failure as well as how to hedge, so to may be said in matters involving cons…

    “Time will tell”… which I find myself saying when presented with similar inquiries.

    While stationed in Korea, I learned how Japanese port authority would let US agriculture sit on the docks – to see if there was rotting. This temporal application of socio-economic causation continued until Reagan (monetarily and fiscally) nuked that nation’s bank-centric, hardliner, agro-protectionist trust with his Tax Reform Act of 1986 (http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986).

    Then again, perhaps the paradox of life revolves around an unquantifiable (scam-national) continuum of economic time and political space, when and where we all find ourselves conning each other?

    Hopefully, Stone’s current episodic production of Wall Street Part II will include V’s query as at least a Wall & Main undercurrent – a la Bud and Dad in Part I.

    dr

    Ps. The SEC recently filed legal action against the son, who was convicted of a felony (misstatement to a grand jury) well before I was introduced to him, which was accomplished by his acquaintance who also was subsequently convicted by a federal court for fraud; thus by way of a caveat, a two-word answer for those requiring a more verbose response:

    DUE DILIGENCE

    Good hunting…

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