Some
would-be advisor puts a logo on some fancy
stationery and sends out 32,000 letters to
potential investors in a stock letter. The
letters tell of his company's elaborate
computer model, his financial expertise and
inside contacts. In 16,000 of these letters
he predicts the index will rise, and in the
other 16,000 he predicts a decline. No
matter whether the index rises or falls, a
follow-up letter is sent, but only to the
16,000 people who initially received the
correct "prediction." To 8,000 of them, a
rise is predicted for the next week; to the
other 8,000, a decline. Whatever happens
now, 8,000 people will have received two
correct predictions. Again, to those 8,000
people only, letters are sent concerning the
index's performance the following week:
4,000 predicting a rise; 4,000 a decline.
Whatever the outcome, 4,000 people have now
received three straight correct predictions.
This is iterated a
few more times, until 500 people have
received six straight correct "predictions."
These 500 people are now reminded of this
and told that in order to continue to
receive this valuable information for the
seventh week they must each contribute $500.
If they all pay, that's $250,000 for our
advisor. If this is done knowingly and with
intent to defraud, this is an illegal con
game. Yet it's considered acceptable if it's
done unknowingly by earnest but ignorant
publishers of stock newsletters, or by
practitioners of quack medicine, or by
television evangelists. There's always
enough random success to justify almost
anything to someone who wants to believe.
There is another
quite different problem exemplified by these
stock-market forecasts and fanciful
explanations of success. Since they're quite
varied in format and often incomparable and
very numerous, people can't act on all of
them. The people who try their luck and
don't fare well will generally be quiet
about their experiences. But there'll always
be some people who will do extremely well,
and they will loudly swear to the efficacy
of whatever system they've used. Other
people will soon follow suit, and a fad will
be born and thrive for a while despite its
baselessness.
There is a
strong general tendency to filter out the
bad and the failed and to focus on the good
and the successful. Casinos encourage
this tendency by making sure that every
quarter that's won in a slot machine causes
lights to blink and makes its own little
tinkle in the metal tray. Seeing all the
lights and hearing all the tinkles, it's not
hard to get the impression that everyone's
winning. Losses or failures are silent. The
same applies to well-publicized stock market
killings vs. relatively invisible stock
market ruinations, and to the faith healer
who takes credit for an accidental
improvement but will deny responsibility if,
for example, he ministers to a blind man who
then becomes lame.
