Twenty five years ago I was defrauded by a woman I’ll refer to as “Nan.” Nan dealt in an esoteric, quasi-financial asset class that was traded in a highly illiquid market that she helped to create. She knew the participants in the market, she knew who needed to buy, and she knew who had the flexibility to sell. What she lacked was capital to buy and hold until a sale could be arranged. She found her way to me as a capital provider through a friend of a friend.
For the first year, everything worked perfectly; each trade had a margin of profit for me and a healthy commission for Nan. The last transaction was the biggest one, and I supplied Nan with an amount of capital that matched all my past profits. Nan told me the buyer was a very large publicly traded company that needed the asset desperately. But, similar to other transactions, she had signed confidentiality agreements with both the seller and the buyer, so I wasn’t able to contact either for verification.
I “bought” the asset and waited for the sale side of the trade to happen. But the sale did not go smoothly. Nan described various delays and excuses for non-payment, each with a patina of credibility, but each growing more elaborate over time. There was “one more approval needed from the buyer,” the official in charge of recording asset transfers was “away on his honeymoon in Tahiti,” the wire was on its way, but “so sorry, one of the numbers was transcribed incorrectly,” and so on. This went on for months.
A battle raged in my mind between common sense that something was wrong and my desperate desire to believe Nan’s explanations.
During the times when the forces of common sense were strongest, always at night, a series of dire, fearful, and catastrophic thoughts took hold. If the trade was fake, if Nan had lied to me, I, who was supposedly so careful and vigilant about these things, would be forever embarrassed. I would lose all credibility with my colleagues and with myself. If I had indeed been swindled, I should quit.
Inside my mind, in various ways, I was blowing up my whole world.
I can picture myself late at night, tortured by my thoughts, pacing our kitchen muttering, hoping Nan would return my call to offer some explanation to reassure me. As I paced, I drank generous pours of Scotch until my mind was sufficiently numbed and addled to permit sleep.
There finally came a time when I demanded that Nan give me written proof that the transaction was real. She sent me a copy of the purported executed contract. It seemed real enough to me. I was reassured. In hindsight, I should have looked more carefully at the document as I might have noticed some inconsistent, time-stamped fax notations at the top of each page. But observance of things in the physical world has never been my strong suit.
Weeks later, while I was on vacation with my family, a Google Alert showed up on my email. Nan had been sued by another investor. My heart sank. A week later, I finally got Nan on the phone. I remember I was at my ten year old son’s baseball’s game. 1 Nan admitted that she’d lied to me and that the contract she’d sent to me was utterly fake, the signature forged. I went to my lawyers who contacted the appropriate authorities. Wire fraud.
From my colleagues, I received some measure of unexpected sympathy rather than the scathing criticism and contempt I’d feared (it helped that the amounts involved were relatively small.) I ceased to worry, glad that the ordeal was over and that I had not been the only one taken in by Nan.
Many lessons learned at Fraud School, with expensive tuition paid in emotional turmoil, blows to my self-esteem, and destructive self-medication courtesy of Dr. J. Walker Black.
I’d been too insecure to admit that I’d been fooled. The more untempered an ego is by lack of experience of failure, the more fragile it is and the more vulnerable to misleading itself.
The more catastrophic the imagined consequences of being wrong, the more my ego had to stretch to find ways–––through sophistry and Scotch–––to avoid admitting the truth.
No deception is more dangerous than self-deception.
Two final thoughts about worrying.
“May you have many worries” is a Yiddish adage that’s actually not a curse but, rather, a blessing. 2 The subtle meaning and hope of the blessing is that if you have many worries, then there’s probably not a singular worry or even two or three so dire as to dominate your entire “worry portfolio.” Sometimes, a dominant worry is warranted. The health of a loved one is an obvious example. But when my potential loss of ego and money by Nan’s fraud became my super-dominant worry, I had, in hindsight, made a huge “misallocation” of worry.
To twist around another common financial term, current performance of worries inside my head is no guarantee that they are the right things for me to be worried about. In thinking about how obsessively I worried about Nan and her fraud, there’s actually a certain comfort in realizing that, with the perspective of time, she was unworthy of a fraction of the worry she caused me. Remembering this incident helps me shrink, if not eliminate, many of my current worries.
So I’ve tried to become a shrewder allocator of worries, my goal for worrying being the precise opposite of the natural goal of investing: I want to constantly shrink my portfolio.
My son played on the invincible West Side Little League Panthers, undefeated thanks to Paul, their brilliant coach.
A piece of advice: never end a conversation with “may you have many worries!” Without further context, it absolutely sounds like a curse.
I appreciate you sharing this information and reminding us all that worry and how much power we give to it, is detrimental to our health.
It is worth remembering that we, most of us in the US, lead privileged lives. I'm not, of course, including the millions living in poverty or in areas where they cannot get reasonable health care. For the rest of us, when we think of the rest of the world, we are, indeed privileged. How far up on the privilege ladder one stands can vary, but with all we have, both materially and emotionally, it is good for us to remember that our worries are not as big as they seem. There are reasons so many clamor, endure hardships and take huge risks to come here. Worried because supply interruptions made you wait for your new car? Worried about the choice between vacation A vs vacation B? Worried that your child might not get in to Harvard and might have to settle for Duke? and on and on. It's always good to have some perspective, to recall when facing a layoff that your family is well, etc, etc.