I had too much fun joining a Zoom call where a scammer tried recruiting people into their trading scam. The invite had many red flags like “free $500 giveaway” and “guaranteed returns”, so I created a fake alias to protect my personal details. Once I was in, it was too easy to spot the scam – they could not answer any of the basic questions I posted, and simply ignored them.

Scammers do not want you to question them as a few logical questions can easily discredit their claims. The purpose of today’s blog is to show (without any emotional bias) how to spot a scam by using numbers, so that you may be able to spot a scam before they take your money. Specifically, we will be focusing on unrealistic returns.

The scammer said that a principal investment of $300 grew to $677,000 in less than three years, which works out to around 27% returns per month. Immediately the scammer has better returns than Warren Buffett, Peter Lynch, Jim Simons and Michael Burry combined – major red flag. Extending these returns to an investment horizon of 20 years, the numbers get so large they’re almost impossible to pronounce. After only 10 years, you will have more money than the entire Forex market and will definitely be the richest person in the world. I could only include 10 rows of Excel results below as the numbers became so large they could not fit within the columns and Excel started producing systematic errors.

The exercise above can be a very effective way to find a scam. Take the scammers returns and extend it to a 10/20/30/40-year horizon. If the numbers are unrealistic (like above), then it is a scam. Use the following formula below to test the returns yourself. You might need a scientific calculator to use “log”. Scammers will usually say they started with a small principal amount “P”, and grew it into a large amount “A” over “n” number of years. From these values, you can calculate the yearly interest rate “i”:

Now use the calculated i to find the amount A over a large number of years n (try 20 as a start).

If A becomes ridiculously large, then it is a scam so protect your money.