Funnycontrol | Financial markets and the original pyramid scheme – Moneycontrol
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According to Investopedia, “A pyramid scheme is a sketchy and unsustainable business model used by fraudsters to lure participants with promises of quick, exceptional returns in a short period of time.”
In India you will, of course, see this scheme being played on every single guy who is asked: “Beta abhi tak shaadi kyu nahin ki? Humein dekho. Kitne khush hai hum”.
This is the equivalent of “I bought X share at Rs 2 and it became 20 million Dinars in just 2 months”. Just like the pitfalls of marriage, the gentleman conveniently ignores to mention how many days it goes in the reverse direction as well.
Every share market enthusiast worth his salt has read Benjamin Graham’s Intelligent Investor or Morgan Housel’s Psychology of Money. Now the issue is, there is an entirely parallel industry based on people who have read about people who have read about people who have read about the benefits of reading these books. And these are the people who have the maximum following on the internet.
The internet is full of such pyramid schemes, accounts masquerading as investing advice. Most of them can be identified on Twitter as “7 lessons from Warren Buffet: Thread”. I have followed 7 such accounts talking about 7 such lessons. Which means I now have 49 lessons from Warren Buffet but all I have are 49 reasons to tell my mother why I can’t afford to get married this year. So I wrote “7 reasons why Warren Buffet is against arranged marriage: Thread ceremony”. For some reason, that thread also went viral.
Needless to say, none of these people have even met Warren Buffet, Morgan Housel or heck even the guy providing the backing vocals for “Mutual fund investments are subject to market risk. We know you won’t read the offer documents carefully, because we have carefully designed them to be unreadable”.
Many of these advice mongers are even more dangerous than kill monger from Black Panther. And if you’re not careful, you will find yourself battling for the throne of highest tweets for re-packaged garbage rather than eliminating the garbage from your stock portfolio.
This game of passing the flaming inferno of bad investments could not have been better represented than in the 2008 sub-prime crisis. Where the House of cards itself was made of houses which were sold for loans against cards. And the only person laughing in the end is the one who finds himself holding the joker.
From the dotcom meltdown of 2002 to the crypto crash of 2022, nothing has changed in the last 20 years except that now you can sell an NFT of the pyramid to an Egyptian Pharoah and hope he doesn’t have you buried with him. Heck Egypt itself has seen its own version of the pyramid scheme wherein under the so called “Arab Spring” a ponzi scheme of “liberation” was sold by Western Powers wherein a despotic dictator was replaced by a bunch of despots who are not even good at dictation.
But who can blame the humble citizen when even governments have been building giant pyramid schemes in social security from EPF in India to Medicare and NHS in the developed markets for decades. A pyramid scheme is essentially ensnaring the fool of today to save the fool who at least had the insight to be fooled yesterday. And both are hoping to topple the pyramid on the fools of tomorrow. This delusional hope of pyramid thy neighbour is also called “Market Timing”.
Pyramids have always fascinated mankind because they challenge our imagination and we wonder how something so large may have been created by ordinary human beings. We often attribute them to acts of God or acts of Aliens. But in the Federal Reserve today, we have a real life combination of God & Alien that literally creates pyramids of money out of thin air. And every now and then it shouts “Help! Inflation! We made the pyramid too large and now it’s going to collapse!”
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