Cons. Frauds. Scams. Whatever you call them, people have been falling for them since time immemorial. Though their means may change, scammers have always been with us and, unfortunately, are often successful in their ploys. But what makes scams so hard to resist and so easy to perpetuate in the first place?
- [04:10] Where the idea that the only way to make money is to be sneaky comes from
- [11:42] What is a scam?
- [14:21] Multi-level marketing schemes as an example of a scam
- [16:28] Scams in real estate
- [20:23] Cryptocurrency scams explained
- [24:06] What is a Ponzi scheme?
- [26:49] The five elements of a scam
- [33:24] The secret to wealth creation and success
[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.
[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today, I want to tell you about a time when I was in my grandfather’s backyard. My grandfather is hosting this amazing party and he’s got all of his friends from work. And I’m, as a little kid, just kind of running around and being exuberant and excited when one of his co-workers is telling my uncle all about this amazing opportunity. And he’s telling them about how they’re going to utilize these loopholes in the sales tax code so that they can buy stuff cheap and then sell it at a markup. And the best part is is due to some tax loopholes, the government is gonna pay them to do it. And my grandfather’s co-worker is trying to convince my uncle that all that he needs is to invest in this process and they’re all gonna walk away filthy rich. And as a little boy, I’m sitting there and I’m like, my God! It’s brilliant. It’s so easy. It can’t fail. Everything sounds brilliant. And I want everybody that is in my family to jump onto this so that they could just make a bunch of money and they could all retire and we could spend the rest of our time playing together because I’m a little boy and that’s the thing that I want most. And I go to my grandfather and I say, “Hey, Grandpa. You gotta go listen to him. It’s an amazing thing.” And my grandfather chuckles and he looks at me and he tells me, you know, tiger? The best way to know something’s a scam is if he’s into it.
[00:01:54] And ladies and gentlemen, I tell that story because it’s kind of stuck with me. My grandfather passed a few years ago and I miss him dearly, but I remember all of the times camping with him and in his backyard when he was having various parties. And I’m recording this on Super Bowl Sunday and so, maybe I’m just a little nostalgic for all of those football games I watched with my grandfather. But I am struck by the wisdom that he brought up. You see his co-worker was obsessed with the idea that he just had to find the right scheme, the right cleverness, the right workaround, and then he was going to be rich. The sky was gonna open up. He’d be in business. He’d have agency over his own life and he would just be able to walk in and tell his boss where to stick it. This was this man’s sole focus. And the thing is when my grandfather moved to Kenosha, Wisconsin in the 1950s to start his family, he had met this man at his very first job. And the story that I told took place in the early nineties, so my grandfather had nearly 40 years of experience with this guy. And one of the things my grandfather noted most about him was that while he was a great co-worker and a super good friend, he also was into every get-rich-quick scheme that came across. And it sticks with me because as a young boy, I was so enamored with this man. I really thought that he was gonna be — not that I knew who Warren Buffet was at the time, but that’s kind of how he was in my eyes. He was a real go-getter. And as I grew up and as I matured, I started to see him in a much sadder light — as a man who just was constantly struggling and struggling. And I’ve come to understand that he had fallen for scam after scam after scam. And I remember the day that he passed on. I went to the funeral with my grandfather and one of the things my grandfather said was, you know, tiger? He never did strike it rich. And, you know, those words found their way to be imprinted on my heart.
[00:04:10] And so, today, ladies and gentlemen, what I really wanna talk about is why we have this idea that in order to make money and have financial stability and security, that we have to be sneaky, that we have to have some sort of trick, and why we so often fall for scams. And as with everything, one of the first things that I always do when I’m trying to understand something that I’m seeing is try to understand the state of play. And so, one of the things in the United States in the economy right this moment is that the majority of workers in the US economy will never be rich. It is a kind of a thing that they say about us overseas is that Americans truly believe that they’re just temporarily embarrassed millionaires. Like every one of us is just convinced that someday, it’s gonna work out and we’re all gonna be rich. But the vast majority of us will never actually get there. And I truly believe that on some levels, we know this more than we ever want to admit and part of that has to do with so many of the different systemic things and headwinds, like globalization, tax codes, etc. that we all kind of know are not in our best interest but maybe some of us voted for anyway. And we all have this understanding that life will get more expensive as we age, so when you’re a young person, you think you have all the time in the world but you also have this idea that you kind of know that as you’re going into the US economy, that it’s not going to turn you into a very wealthy person because the incentives in the economy itself are not set up such that enriching workers is kind of a thing that it does. And we also know that things will get more expensive as we age. If you are a millennial — and, you know, people like to use the word “millennial” as a code for young person but I have to tell you that I am 40 years old and I am a millennial, so not exactly a young person but I have watched things get more expensive as I’ve gotten older. I chose to have children. I’ve got two beautiful daughters. And if you think that they’re cheap, they’re not. And that’s not even including all the extras. I’m just talking about like feed and watering. And so, we also know that in the future, there’s going to be expensive healthcare that we have to take care of. Many of us have seen our grandparents and parents have to go through this system in which, as they get older, the drugs become more frequent, more numerous, and more expensive. And so, in the back of our head, we kind of know that we need to be saving. But just because of how humans are and our inability to fully understand things that are outside the present when we’re in our twenties, we tend to not do it. And so, people will frequently come into my practice for financial coaching somewhere in their mid-thirties to late fifties going, “I need to figure out a strategy” and they know that they need to save and they know that at this point in the game, they’re gonna have to see huge returns in order to make it big.
[00:07:05] And all of this is true and not true all at the same time. There are ways in the US economy to become wealthy and there are ways to manage expenses as you get older. And there are ways to save no matter what stage of life you’re in and be able to make decent returns. This isn’t a one-size-fits-all characterization. I’m making a blanket statement that requires a little bit of nuance to fully understand. But it’s also important to note that wages for the average worker stagnated in the late seventies. And so, when we look at the difference between my grandfather’s generation where he got into a factory job very early in his life, relatively speaking, and he stayed there for 45 years and got the gold watch — all without a college education. As a blue-collar worker, he was able to put all five of his children through private school. They all went to universities. One of his sons is a PhD pharmacologist and another one’s a lawyer. All of his daughters have their degrees — most of them master’s degrees — with successful careers. When you look at that off of his wages, there’s no way somebody in a similar situation now could possibly do the same thing. And so, we know the economy over the last 40 years has made it harder for the average person to gain any type of financial security. Things have gotten more expensive, things have gotten more complicated. We’re no longer competing with other people in our local little corner of southeastern Wisconsin. We’re competing with the globe. And, of course, across the entire backdrop of all of this, we’re told that the system doesn’t matter; that it’s all your fault. And really, this is just playing into this type of idea that your ego exists to protect you but it also exists to protect itself, so like it’s really flattering to us on a lot of levels to believe that we are so powerful; that we are the only thing that actually matters. And this, of course, feeds into a cycle of shame where we like to be told that we’re — about our financial decisions. There are radio hosts who have made entire careers off of this and I think you all know what I’m talking about.
[00:09:13] And that all that is to say is that there comes a point in time where you start to realize that you’ve worked very hard and very diligently, you’ve played by all the rules, and the hard work hasn’t paid off in the way we were promised. And when you’re later in the game like I am at this point, you start to really be worried about it. And this starts to generate this belief that the only way to get ahead, the only way to make any “real” money, is to be sneaky and to have an angle just like the man at the top of the show. And so, this is where we enter in the scam. Now, ladies and gentlemen, I’m taking a very narrow view of scams and scams are like leaves on a tree. There are hundreds of them and a lot of them look the same and I could be here all night describing different types of scams. But I wanna say that what I’m looking at are these ideas of being able to be in business for yourself or somehow you’re gonna get an angle on the economy by positioning yourself through entrepreneurship or real estate or passive income, more investment strategies. What I’m not talking about today are things like sweepstakes, fishing, all those people who call you that somebody’s going to sue your social security number — not talking about those ones. I’m talking about these ideas where somebody comes along and hands you this great idea that if you just are the right type of person, you’re gonna make it huge. And, of course, these people are going to collect a fee and make themselves wealthy but you are probably gonna be left holding the bag. Scam artists prey on people who are under stress, pressure; people who have hopes and dreams that they’re afraid aren’t going to come true; and people who are afraid. And we’ve talked a lot about the media. The media, of course, having an agenda and that agenda is to make money and nothing makes money like fear and outrage. And then on top of both of those things, the idea of the American dream and our little slice of the world in a classless society. Those three things together make this a place where scam artists are huge. And if you’ve ever been outside the United States, you know that there’s plenty of other countries where people are running scams but nowhere in the world do they run scams like we do in the United States. It’s a unique problem here because we have a unique trifecta of stress and pressure plus hopes and dreams plus fear.
[00:11:42] So, let’s talk about what a scam is. What is a scam? A scam is any type of fraudulent or deceptive act or operation that is designed to strip money away from somebody. And I want to note that it doesn’t have to be fraud or even illegal to be a scam. There are perfectly legal ways to scam people. Payday loan stores are a great example of this, but a lot of used car dealerships can fall into this, too. This is why we have things like anti-lemon laws because it is legal to sell you certain things but it’s also a scam because it was deceptive in the way they sold it to you. It is — all that it has to do in order to be a scam is to rely on false or marginalized chances of success. That is, they completely misrepresent the actual not only risks, but probabilities that you will be successful, not that somebody will be successful. This goes back to the lottery example. What is the probability somebody wins a lottery? 100%. What’s the probability that it’s going to be you? Next to zero. If somebody hands you a lottery ticket and sells you lottery tickets on the idea that you’re going to win, that’s a scam. If they sell you lottery tickets with the idea of this does not have any chance and you’re throwing your money away, that is a not a scam. And you’ll note the lottery doesn’t advertise in either one of those fashions. They just make you aware of the number that you could possibly win and make no comments about it. But there is this underlying promise in a scam, and it’s universal across all of them that it’s going to be easy, that it’s exclusive, and that if you are special, smart, and brave enough, you will — it’s a guaranteed win. And that not winning, if you were to be so unspecial, unsmart, or unbrave, then it’s just proof that you are deficient. Now — and we see these types of things all the time. It’s all the people who like to get on there and be like, no one’s coming to save you and it’s all your fault. Well, that’s as true as it’s not. There’s nuance there. But when we start to focus so heavily on the individual, we start to drift our way into scam territory. And one last thing about this type of scam where they’re gonna pitch you on this entrepreneurial idea is that there are or there have been or there are currently people who can do and continue to make money using the scam itself. And we’re gonna get into that here in just a second.
[00:14:21] Alright. So, what are some examples of these scams? Well, MLMs or multi-level marketing programs are a great example of these scams. They pitch you in the idea that you’re gonna own your own business. You’re gonna be an entrepreneur. And they rely on you to purchase your own inventory with the idea that you’re gonna go out there, you’re gonna hustle and grind, and you’re gonna move product. But, of course, they also rely on you to bring new people in because that’s where they incentivize the money structure. So, here’s the deal. If you’ve been on Facebook and suddenly, one of those people from high school reaches out randomly, like, “Hey, we haven’t talked in a long time. How are you?”, they’re probably going to try to pitch you on the idea of becoming an entrepreneur to own your own business. Now, what’s going on here is that the MLMs pitch the salespeople or the entrepreneurs and they need that legal structure in order to make their scam work. But they pitched the entrepreneur on the idea that they could have control of their income. But critically, the incentive structure within them is set up such that in order to actually make money doing an MLM, you don’t make it by moving product or selling. You make it by recruiting new people on the promise that they can move product and sell. And so, it’s this idea of like, well, yeah, you start off with the storefront and then pretty soon, you’re the wholesaler and you’re controlling the supply chain. And this is insanity because if you look at it mathematically, how it would have to propagate across the economy in order for this to work, it mathematically doesn’t make any sense. Like you will run out of people to get down on your — they call it your downline — pretty darn quickly if it were to actually work the way that they said. What the MLM company is doing is encouraging you, the quote unquote entrepreneur, to buy their products as your stock. And one of the things to note is that the average MLM entrepreneur, when all is said and done, averages out to being a negative $25,000 in the hole, the vast majority of it in debt. That is an example of what we’re talking about here.
[00:16:28] But there’s another way. There’s another place where we see this a lot and that is in real estate or these “passive income.” It’s such a buzzword. Now, the thing about real estate, passive incomes, Airbnb strategies is that there are people who make tons of money on these because the upside is massive if you can actually get into it. But like every lottery ticket, what’s the probability somebody’s gonna hit it big with real estate? Well, it’s a hundred percent. And what’s the probability it’s gonna be you? Turns out, not so good. Why? Well, real estate’s tricky because it’s one of these things we all have at least some exposure to it, especially if you’re a homeowner and you’ve seen your equity go up and you really didn’t do anything and you think, well, this has gotta be a slam dunk. The problem is is that when you’re living in your own home, you are just doing the maintenance on your home. You don’t think about that and all the other things that go along with being a real estate investor. And because there is some very legitimate underlying business parts to this, it can be plausibly stated that, well, if you just learn enough, you’ll be a success. But the whole idea of having real estate to do passive income is feeding into this idea that in order to make money, I have to be sneaky. There has to be a way to get other people to work for you and pay for your stuff. And when I’ve talked to people who have come to me to say, “Hey, Dylan. Let’s set up an Airbnb strategy. I wanna get some passive income,” there’s always a little bit of the “It’s my turn” to their idea — the idea that they have been strip mined for value their whole life and now, they wish to put themselves in a position so they can do the strip mining because that’s how they think this is supposed to work. And we talked about this in a previous episode. This is rent-seeking behavior — that’s they’re looking for rents above the value actually provided into the system. And if you believe Adam Smith and The Wealth of Nations and the idea of capitalism, a free market is ideally a market that is free from rent-seeking behaviors. And like the MLMs, a lot of the people who are pitching you classes and this idea of passive income and Airbnb strategies and real estate investing typically fail to let you in on the fact that 95% of real estate investments fail to make a profit and/or end up in the red. So, when you’re looking at real estate investing, really only 5% actually work out to make a profit. And when you consider that the average return on real estate is 10.6% — now, that’s nationwide and people who are really into real estate will be like, well, you’re not taking into consideration local markets and stories and momentum and all this other stuff. Well, I mean, part of that’s true but stop and think about it. If 95% of real estate investments fail to make a profit and the average return is 10%, this gets into the lottery situation where the people who really hit it big tend to make a ton of money but the vast majority of people do not, mostly because of all the other things that are more above and beyond just buying the house and doing the thing. And the other interesting part about this is when you actually think about it, well, my average return is 10.6%, well, that’s lower than the average return of the S&P 500 over the same periods of time. And that’s really interesting because to invest in the S&P 500 is very simple, it’s very time-effective, and it doesn’t require a whole lot of energy. But to actually be a successful real estate investor is a really, really difficult thing to do. And so, again, can people make money in real estate? Well, totally. My family’s been in residential real estate for over 120 years. There’s money to be made. But is it going to be the massive amounts of returns that people are expecting? Probably not. And there’s a very high probability that at best, you’re gonna break even and at worst, you’re gonna lose a lot of money.
[00:20:23] Which brings me to my last one and this is the one where it’s February, so I can talk about crypto again and that’s investment strategies. Now, for as long as I’ve been paying attention to this and granted that really only picks up in the late nineties, one of the things that I’ve noticed is that there’s always somebody who wants to sell you this opportunity to be an early investor because we know that early investors are the ones who are gonna have the massive payouts if it actually blows up. Venture capital firms do this a lot. They wanna be the first-level investors. But a lot of times, they won’t get to that third round and the majority of their investments don’t actually pan out and they lose the money. But that one that’s successful? Man. They make enough money to justify all the rest of it on it. But part of the deal here these people who are telling you about these early investment opportunities when you’re not an accredited investor, where you’re not somebody who’s got a lot of market experience, and you’re not working for a financial firm is that they’re not actually trying to sell you the investment. They’re trying to get you to help them with the price. So, these types of scams tend to be in one of two categories, either a pump-and-dump scam or a Ponzi scheme. Now, what is a pump-and-dump? A pump-and-dump is — and we’re seeing this a lot in the crypto space right now. This is one of the things that makes me really, really nervous about crypto in general is because when you start a protocol, and we saw this with Bitcoin, the protocol produces a lot of the coins very, very quickly in the very early days of the protocol and then that tapers off as it gets further down. So, those people now have the crypto at a very, very low rate. So, lots of coins at very low rates. Call it like a fraction of a cent, maybe a 10th of a cent. Now, they go out into the market and they advertise and they get excitement. They get some YouTube influencers to tell you about it. And now, they’re getting people to buy into this. Buy into it. Well, what happens when people start to buy into things? The price starts to go up. And so, if I had 10,000 coins at a 10th of a cent and then it went up to 1 cent, I’ve just had a return that’s just outstanding. Because there’s all this momentum in the market, I can then dump all those coins onto the market. It’s not gonna influence the price but I cash out. And then pretty soon, people realize, oh, wait. Hold on a second. Why did I buy this in the first place? And then the price is gonna crash and they’re left holding the bag. This is why you hear a lot of crypto investors will tell you to HODL, which is hold on for dear life. Why do they tell you that? Because they need you to hold onto the investment or — you know, I’m using that term loosely — they need you to hold onto the crypto to help maintain the price stability because if you don’t, you might actually crash the market. Especially with those coins that are so cheap, small movements can have big results. And so, while they’re telling everybody HODL, HODL, HODL, HODL, they’re sitting there waiting for the price to hit up so they can dump ’cause they’re gonna have the paper hands while them telling you to have the diamond hands and they’re gonna walk away with a ton of money. And this happens all the time. Because crypto is an unregulated market, they can get away with this. If you were to do it with actual securities like pink sheets or over-the-counter securities, you would go to jail. And if you ever wanna watch a movie on exactly that type of thing, you can go watch The Wolf of Wall Street because that’s what he was running. It was called a boiler room but it was a pump-and-dump scam. They would buy a bunch of the shares, they would get a bunch of people to buy them to jack the price up, they dump the shares out on the market, and then they walk away. That’s what a pump-and-dump scheme is.
[00:24:06] And then there’s the Ponzi schemes. And we’ve talked about Ponzi schemes before. There’s several different attributes to a Ponzi scheme but essentially, what it is is you get people to invest in your thing. Let’s outline it this way. I have a box and I write on the box “thing.” and then I put some money in the box. Then I convince some other people that because I put money in the box, they should put their money in the box and so, they do. And then, I hand them some money out of the box. And they go, wow! This is amazing. And then, I go get more people to put their money in the box and then I hand out more money out of the box and we just continue this cycle, so the box suddenly has more and more money in it. Then I say, well, the box has this great growth record, so it must be worth a billion dollars and everybody believes me, so they keep putting money in the box and I keep putting money out of the box. But at no point did I ever make an economic reason or argument that the box was actually worth anything. Now, if that sounds absolutely insane to you, you should stop for a second because that is exactly how Sam Bankman-Fried of FTX described how staking in crypto investments worked. That’s how he described FTX and the FTT token and all these other things. And what’s crazy is that explanation is more or less the same as a lot of the other founders of protocols have used and what they described is legally a Ponzi scheme — this idea that somehow they’re gonna pay the old investors with money from the new investors. They have a secret sauce that they’re not gonna tell anybody about. And they create a bunch of excitement and FOMO because trust me, I’m smarter than you.
[00:25:38] And what happens with a lot of these pump-and-dump schemes or these Ponzi schemes, particularly in the crypto world, is that they say, well, it’s early tech. Or bro, you don’t understand. Or, well, you know, the centralized fiat currency is old tech. I mean, look at Kodak in the film industry. And, again, just like with real estate, does cryptocurrency and some of these investments have real things behind them where people can make real money? Yeah, totally. That’s what makes it an effective scam because there’s just enough truth in it to get you to buy in and just enough confusion to make you a little bit nervous but then, they just dangle the upside in front of you and you’re like, yeah, I totally want that ’cause it’s my only way of the situation that I feel I am in. Because we know in our economy that it’s getting harder and harder to get ahead. We know, given the job hopping, that corporations are no longer promoting from within. We know that global competition has eaten a lot of Americans’ lunches. And so, these scams come in to take advantage of the stress and the pressure and the hopes and the dreams and the fear that is ginned up by the media.
[00:26:49] And so, for you, ladies and gentlemen, it behooves you to know the elements of a scam and know when they’re actually working on you because as I’ve gotten more into the personal finance world — I sell courses. I sell workshops. And I’m always looking at how am I adding value to you because I don’t want you to give me money unless it’s actually valuable. And at the same time, I see people doing things just a little bit off of what I’m trying to do except they are just leveraging the living crap out of the stress, pressure, hopes, dreams, and fears. So, what are the elements of a scam and how can you help defend yourself? Well, I’ve put together a little list and it’s certainly not exhaustive but I think it’s very useful.
[00:27:34] Number one: they claim that you and your energy, effort, faith, or hustle, is the sole and focused determinant of success. That market conditions? Nope. Nope. If you just believe enough, if you just hustle enough, you’re gonna be fine. And that when you fail, it’s entirely because you didn’t have the right energy here. You weren’t positive enough or you didn’t have the right thoughts in your head. That is to say, anybody who’s trying to pitch you on something called the law of attraction — that if you just think the right way, all the good things will show up for you. And if they don’t, well, then, that’s your fault. And as we know, yes, the individual matters and we matter quite a bit but the system is still at play here and that system is a lot more strong than you are. So, yes. What they say is half true. You are a huge part of your success but you’re not the sole and focus determinant of it. And so, a scam is gonna make you the be-all end-all of the whole thing.
[00:28:36] So, number two: a scam will tell you all the upside, none of the downside, and will never discuss risk. When I get people from my high school days who reach out to me to give me a great business opportunity — and I’ve had this in my men’s groups, too, where I’ve had people who reach out to me and be like, “Hey, do you wanna be part of an MLM?” And I always ask them all the same question: I wanna see your profit and loss statements for your business over the last three years and I wanna have a discussion about the risk in the holding of inventory. Now, I’m a corporate auditor, so this is my lingo. But essentially, what I’m asking is show me your business. Let me see your business case and if it makes sense, I’ll buy. But you know what? In all the times this has happened to me, not once has the discussion gone beyond that point. Why? Because they don’t even have P&L statements, let alone this idea of what the risk might be. And, of course, what I see six months down the road, they’re on YouTube trying to sell all their stuff at cut-rate prices because they’re trying to recoup what they can.
[00:29:41] Number three: scams will ask you to pay up front. You see this a lot with the sweetstakes or like you-won-the-contest type of thing so like, yeah, just pay me in gift cards and it’ll be fine. But like if you think about like the MLM or the passive income strategy or crypto, it’s requiring you to put a lot of money up front and you might end up holding the bag because of it. That is one of the elements of a scam. And so, if they’re asking, if they’re telling you you’re the be-all end-all, it’s all upside and you just gotta plant your seed — that’s a phrase they use quite a bit — run because it’s probably a scam.
[00:30:14] Number four: if you do run, just know that they’re going to deride you or anyone else who questions the scam and/or they did it once and it failed. Now, for myself, I’m an auditor by trade, so I’m professionally skeptical and I’m skeptical by nature but like now, people pay me to be and so, when people bring me business opportunities, I want to like break it down. And what I’m told particularly, and I’ve heard this in the real estate world ’cause I did work in the real estate world for a while, when I say the very reasonable fact that 95% of real estate investment properties fail to turn a profit and typically end up as a loss, they will tell me that’s because 95% of the people who come through real estate they’re just tire kickers. Well, that doesn’t make a whole lot of sense. You mean to tell me the vast majority of people fail and it’s because they’re just all lazy? I’m sorry. I’ve spent a lot of time working in the economy my entire life and the vast majority of people I meet, they might not work the way that I wanna work, but they’re not tire kickers. And so, there’s this idea of this exclusivity of like, oh, yeah. When you make it, you’re gonna be a part of this elite club. And they deride people who aren’t, calling them tire kickers or negative nannies or hobby horses. These are all terms I’ve heard multiple times in different areas.
[00:31:30] Number five: the claims of secret knowledge. And this is the one that always gets me because one of the things when you look at audit scams, okay, and that’s a whole different episode, but you might have heard of a company called Enron and one of the ways that the executives of Enron were able to run their scam for as long as they did was they positioned themselves as the smartest guys in the room. And when they did that, basically they were challenging people to make themselves vulnerable to the idea that maybe they just weren’t as smart and didn’t understand it. And if you know anything about how the Eagle works, you know, we don’t like that idea. The problem is is that for people like myself, I have no issue feeling stupid because I’m smart enough to have this idea in my head or maybe I’m just arrogant enough that if you can’t explain it to me like I’m five, well, then you’re probably lying. And so, if you’re gonna claim that there’s some secret knowledge and you’re going to explain to me how something works, well, then I’m gonna want to know the whole thing and when they get to the whole point of, well, at some point, you just gotta trust me, the answer is no and you’re running a scam. MLMs are like this. When I’ve asked, well, how do you manage this downline? How do I make money by selling these products? And they go, well, you just gotta grind. You just gotta get out there and grind. I said, well, how many products do you sell? How do you prospect for clients? In an average month, what is your profit and loss on this? How much money is coming from your downstream? What type of debt have you done to get in here? No, bro. You just gotta trust me. There’s your claim of secret knowledge. In real estate, it’s the whole thing of like, well, you’re gonna buy my course and I’m gonna give you my calculator and you’re gonna be able to find the right, you know, locations and once you’ve done all of that with this secret formula, you can’t lose. There’s the claim of secret knowledge. Or, of course, the crypto bros’ “Just trust me.” That’s the claim of secret knowledge. There is no secret knowledge.
[00:33:24] The biggest secret to wealth creation is that there isn’t a secret. The biggest secret to success is there isn’t a secret. The people who are successful love to talk about themselves and they’ll tell you everything you want to know. The problem is is that it’s not exciting, which brings you into the last element of a scam. They like to position themselves as exciting and sexy and they leave you feeling full of FOMO. That’s how they get you because money’s emotional. Like at the end of the day, that’s all they’re doing. They’re leveraging your emotions to pry the money outta your hands. And they’re telling you like it’s secret knowledge and you just need to be initiated into the inner circle and once you do, it’s gonna be great. You don’t wanna be a hobby horse or an a tire kicker, do you? So, why don’t you just plant your seed and come on up? It’s all upside from here and at the end of the day, it’s all you, so why not bet on yourself? And if that sales pitch sounds just a little too practiced, it’s because I’ve heard it a lot. And I’ve never seen one of those people become successful because in the end, being sneaky rarely wins. And when it does, it relies on strip mining value from other people, whether by overcharging for rents, duping people into being part of your downstream, or having them pump the crypto that you’re currently holding. If you have to be sneaky about something, it’s probably not the right path for you to be taking. And it’s so easy to fall into those traps. At the end of the day, the wealth creation strategies that have the highest probability of success are boring. They’re not exciting. And when I describe them and in future episodes very soon I’m going to be, they’re akin to watching paint dry and over the long game, they’re undefeated. They don’t lose. Yes, there’s ups and downs. But it’s not sexy and it’s not all on you and you don’t have to pay up front. You can pay as you go. And if you don’t want it, that’s okay. And if you wanna know the knowledge, I can point you to tons of books where they wrote it all down. But it’s not exciting. But we fall for a lot of these scams because we crave that; because we think that the sneakiness is the secret sauce that’s gonna make it and it’s not. It’s how you play the long game.
[00:35:47] And I know how that feels because I remember what it was like to clean out my retirement fund so that I could make it through a really rough period of life. I had been doing okay and I had saved and I had had a lot of money in the market and there I am sitting there, staring at zeros on all of my retirement accounts and my savings account with a negative balance and my checking account because the last payment had bounced. And I’m sitting there thinking to myself, how am I gonna ever retire? I am in my thirties and I’ve wasted a lot of time and I’ve made a lot of mistakes and how am I ever going to have enough money to retire, to not be a burden on my children and on society? I’m out of time and my self-talk is getting really, really hard because I’m feeling shame. And suddenly, I realize that I am going through these motions, hoping that if I punish myself enough, then I won’t have to face the music of my financial situation. And so, I started flipping through YouTube videos and I came across one by a man named Charlie Munger, who is Warren Buffett’s right-hand man. And he said, “To build wealth for the average American, the most important thing to do is to settle on a boring strategy and diligently save the first 100k and let compounding do the rest.” And what struck me about that was here is a man who has made billions, telling me a strategy that is completely unremarkable. And in that moment, I felt the weight of the truth of the whole thing. And so, as I rebuilt my life, I focused on just diligently saving that 100k, not on the investment strategies or the asset allocations or the market positioning. I just put money away every month to get to that 100k as fast as I could. And six years later, I had it and I continued with Charlie Munger’s advice. And it took me two years after that to hit 200k. And as I’m sitting here right now, it takes me about 14 months because I’m playing for the long game; because I’m avoiding everything that’s sexy. I’m not doing anything sneaky. I’m just going forward over the long term.
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