Stock Market Scam

Came across this wonderful true story about a stock market scam:

The rise and fall of stock market prices is notoriously difficult to predict. Playing the market can be a fast road to penury, so when one particular stock broker started to demonstrate an almost superhuman capacity to detect market trends, he found his services in great demand. Was it down to pure chance, coincidence — or something else?

In fact, in his particular case, it was something beyond conincidence… though nothing of a paranormal or supernatural order. This publisher of a stock newsletter would send out 64,000 letters extolling his state-of-the-art database, his inside contacts, and his sophisticated econometric models. In 32,000 of these letters he would predict a rise in some stock index for the following week — and in the other 32,000 he’d predict a decline.

Whatever happened to the stock market that week, he’d send a follow-up letter — but only to those 32,000-odd people to whom he’d made a correct ‘prediction’. To 16,000 a decline. Whatever happened he would have sent two consecutive correct predictions to 16,000 people. And so on. In this way he built the illusion that he knew what he was talking about.

His purpose was to boil the database down to the 1,000-or-so people who had recived six straight correct predictions (by coincidence) in a row. These would think they had a good reason to cough up the $1,000 the newsletter publisher requested for further ‘oracular’ tip-offs.