James d. Gwartney

Video:
The Pyramid Scheme that Collapsed a Nation
Similar schemes have emerged in many countries. Examples include MMM in Russia
in the 1990s. Another famous fraud that has spread over much of the world is sometimes called
the “Nigerian prince” scam, but it can be done by someone posing as any rich person or person
who has access to wealth. In the scam, which spread by letter and then by fax machine in the
1980s, and now spreads by social media or email, you receive a letter from a person whose
money is trapped in a war-torn country or a country that is undergoing regime change. The
person says he will be happy to pay you a large sum to help him get his money safely out of
his country—and he asks for your bank account number so you can receive the funds. If you
give him your account number, guess what happens? He uses it to transfer all your money to
himself, and there is very little you can do to get it back! There are many variations on this
scheme; sometimes the scammer asks for money to pay some kind of fees, and there will be
more and more fees and you will never get paid back.

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Realize No One Can Consistently “Beat
the Market”
Despite the advantages of stocks discussed above, many people refrain from investments in
stocks because they feel they do not have either the time or expertise to identify businesses that
are likely to be successful in the future. This may be especially true in countries where capital
markets are just emerging and both investors and regulators have little experience. Even in
long-established markets it is difficult to forecast the future direction of either individual stocks
or a broad measure of their average price. No one can say for sure what will happen to either
the price of any specific stock or the general level of stock prices in the future.
Most economists accept the random walk theory
(?)
. According to this theory, current
stock prices reflect the best information that is known about the future state of corporate
earnings, the health of the economy, and other factors that influence stock prices. Future
changes of stock prices therefore will be driven by surprise occurrences, things that people do
not currently anticipate. By their very nature, these factors are unpredictable. If they were
predictable, they would already be reflected in current stock prices.