risk
Too Smooth To Be True
The rule
Steady returns with almost no ups and downs, from a method nobody can check, warn of fraud, not skill. A straight line that never dips is too smooth to be real.
Where it flips
Not every smooth return is a trick. A bank fixed deposit is smooth by design, and fully honest. So smoothness worries you only when it comes with high, market-level returns and no method you can check. The fix: ask what is making it smooth, a truly safe product, or a risky strategy pretending it has no risk.
Thorp once doubted a fund whose returns were oddly smooth and whose method no outsider could check. He was right; it was a fraud. Real market returns are bumpy. Real risk shows up as ups and downs. When someone promises a straight, always-rising line with no bad months, the smoothness itself is the warning. Either the results are made up, or losses are being hidden until the whole thing falls apart.
A worked example
A scheme shows Haridya a record of exactly 2% every single month for four years, with no losing month. A real stock strategy earning that much would have swung up and down along the way. So the strange straight line, not the number, is what should make her walk away. [illustrative]
How to spot it
- ·Returns with no losing months
- ·A method outsiders cannot check
- ·High returns claimed with almost no ups and downs
Edward O. Thorp · A Man for All Markets