Are Investors Just Too Greedy?

Yesterday, Philip Wahome at the Daily Nation wrote a cut-and-shut article in an effort to explain the possible motivation and reasoning of all the people who invested in the disreputable pyramid schemes which collapsed last year. There was lots of airy-fairy Economics 101 theory and some quotes from  “experts” on irrational  investment decisions and how they affect people’s investment behaviour. But, to paraphrase Chris Rock, whatever happened to “greedy?”

And this is not a problem limited to Kenya. The Nigerian 419 scam has been making money off greedy and gullible westerners for years. Meanwhile, in November last year, there were riots in Colombia after a series of pyramid  schemes collapsed, with some leaving notes on their office doors, telling disappointed investors,

Now, for being stupid and believing in financial witchcraft, you will have to work for your money.

Harsh, but ultimately fair. Investors had entrusted their life savings to businesses offering market-beating returns of up to 150%. Surely if such returns were realitically possible, everyone would be doing it, not just bespoke “investment managers” who were unregulated?

Further, after Bernard Madoff’s arrest for running what was effectively a giant pyramid (Ponzi) scheme for decades in December, this month we are now seeing an Enron-style company collapse in India. Ramalinga Raju, chairman of Satyam, one of the largest outsourcing companies in the world, admitted to fabricating profits and artificially inflating the bottom line.

What these scandals show is that investors throughout the world are not necessarily stupid, but they are greedy. So avaricious in their quest for a quick return with minimum effort that they are willing to suspend all rational and critical thought and hand their hard-earned money to shiny-suited salesmen who promise them the earth.

While there are groups of investors who have lost everything calling for more regulation and penalties for those who conned them, I have to admit that I have very little sympathy. Why did they not carry out their own due diligence? Where did they think these abnormally high profits were going to come from? Did they not stop to wonder if there might be something even slightly suspicious about these few select firms being able to offer returns that were impossible anywhere else in the market? It seems that when offered the “opportunity” of massive gains, many people neglect to use their critical faculties.

No matter how many times it has been stated, it
bears repeating: if it looks too good to be true, it probably is. Still, with financial scandals in Asia, North and South America and Africa, all we need is for Europe and Australia to come up with their own misdeeds and we’ll have ourselves a global party. Only there won’t be anyone able to pick up the bar tab.

[Image by Rickh710]

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