In January 1973, a 13 year-old girl growing up in Lagos’s inner city neighbourhood of Itire, Surulere saw her hopes and dreams crumble around her in ruins because of someone else’s poor decision. As the penultimate one of seven children living in a cramped, single room “face-me-I-face-you” accommodation, this girl whom we shall call Sandra was no stranger to poverty, and yet having fought her way into a promising position, it was cruelly taken away from her.
Her father was a gateman at a military installation and her mother was a housewife, so there was little chance of obtaining a high quality education on the strength of their own efforts. The Lagos State government at the time however, had a special program for gifted children, which permitted them to attend the very best Mission schools alongside the children of the rich and famous at a very hefty discount. Sandra was one of these gifted few, and so despite being too poor to even afford stationery much of the time, she found herself attending the prestigious Methodist Girls High School alongside a class roster that now reads like a Who’s Who of Lagos high society.
Despite her steep disadvantage in life, she was set to become the breakout unicorn story on the strength of her sheer individual brilliance and access to a favourable state policy. This all changed when her father – a compulsive gambler – was approached by a friend promising him “sure odds” on a pool bet. The only money he had at hand was his young daughter’s (heavily discounted) school fees, and you can guess what happened next. To cut a long story short, at the ripe old age of 13 and at the top of her class in a school she had fought tooth and nail to be in, Sandra was forced to drop out and become a sales girl to earn some money.
Gambling and high yield “retail investment” are exactly the same thing
A few years ago, at the height of the furore surrounding the infamous ponzi scheme MMM, I told this story to an acquaintance who was considering putting his money into the scheme despite knowing that it was in fact a high risk ponzi scheme. I am after all, the offspring of “Sandra” and heaven knows what sort of life I would have now if she did not have the most unlikely Cinderella experience a few years later – I certainly would not be writing this article, that is for sure.
The acquaintance took my advice and refrained from putting his money into the ponzi scheme. A few months later however, he put an even larger sum of money into an “investment program” which unsurprisingly went kaput, leaving him nearly N2M out of pocket. When the news of another such fly-by-night “investment platform” closure emerged this week, the sob stories and loud gnashing of teeth were very much deja vu.
Like the last time (and every other time this happens), there is a vocal minority that insists that “x platform/investment procedure/alleged investor is not a scam! You just don’t understand how this works!” Like all the other times, these unfortunate souls have made the cardinal errors of 1) Thinking they have discovered something about money that nobody else has done in the several recorded centuries humans have used money, and 2) Believing in the sunk cost fallacy, which compels them to waste further time and money to add to that already spent in a futile attempt to recover their “investment.”
There are two very important principles about trading, investment and gambling that everyone who desires financial literacy must understand. The first is that the house always wins. Market estimates put the percentage of traders who lose all their money and exit the market in a worse position than before at a whopping 95 percent. In other words statistically, you WILL lose all your money and get kicked out of the game.
Of the 5-10 percent or so who manage not to get completely wiped out, not more than 5 percent actually make money (i.e break above zero) with any kind of consistency. Statistically, your average plumber in Somolu makes significantly more money than 95 percent of people who fancy themselves “traders” because they bought a “forex trading masterclass” from some fellow wearing horn-rimmed glasses and an old suit. The only entities that rarely or never lose are the trading platforms and the huge high frequency traders like JP Morgan and Goldman Sachs.
The second principle to remember is that there is no such thing as a “level playing field” in any kind of electronically traded market, and so anyone trying to make you put your money in must have their own agenda. The aforementioned high frequency trading whales have an implicit interest in ensuring that as many hopeful schmucks as possible keep on streaming into the market with their highly leveraged $300 bets hoping to emulate Warren Buffett and “break the Bank.”
These schmucks inevitably lose all their money to the HFTs who run rings around them in nanosecond and hoover up all their losing bets. In other words, that colourful platform urging you to put your hard earned $700 into forex or equity or commodity trades may simply want you to come in to give the market more liquidity for the benefit of the bigger players – and you are not one of them. The market after all, is typically a zero sum game – for some to win, some must lose.
The same scam ropes in deities too
Something I remember very clearly from my childhood as a Jehovah Witness was a stated and unsubtle series of instructions from the higher-ups directing door-to-door preachers to specifically look out for those in some sort of turmoil or distress. There were even booklets and brochures produced specifically to target those who were newly bereaved or had suffered some sort of reversal. The reasoning behind it was not implied, but stated openly and explicitly – “people are more receptive to messages when they are in emotionally vulnerable states.”
The emotionally vulnerable state of someone suffering from the loss of a loved one might be more powerful than that of someone struggling with chronic poverty or acute brokenness, but the effect is more or less the same. In that vulnerable position, people are more susceptible to listening to suggestions that they normally might not give the time of day to. When someone who used to be busy at work suddenly finds himself at home, out of a job and running out of savings as he struggles to feed his family, his reaction to esoteric messages from religious cults or prosperity preachers is analogous to his reaction to pyramid schemes, HYIPs and gambling.
The screaming prosperity preacher offers what promises to be a quick solution NOW! The “sure odds” offer hope of hitting a nice sum of money NOW! The 20 percent monthly profit “investment system” offers a path to easy riches NOW! In that confused, unsettled and vulnerable state of mind, humans typically default to whoever appears to have the answers. This person might be the snake oil salesperson offering a fake “investment”, or it may be the friend offering “sure odds” to a guaranteed gambling win, or it could be someone representing one religious entity or the other promising peace of mind and answers to prayers.
These people are all in fact the same person, which is what the takeaway from the MMM-MBA Forex story arc of 2016-2020 should be. The problem is not so much that ordinary Nigerians are just financially illiterate – although they generally are. The reality is that, given the right mix of economic turmoil, poverty and desperation, even people who ordinarily would know better, often find themselves drawn into these financial, emotional and spiritual black holes.
The problem ultimately boils down to macroeconomics as it so often does. Open up the economy, roll back the predation of the Nigerian state against legitimate profit-making enterprise, and generally just stay out of the way, and Nigerians will naturally migrate toward economically productive activities. Nobody will ever have to explain that fly-by-night investment or compulsive gambling or religious predation are bad – people will simply migrate away from those things without being told.
It really is that simple.
