Why investment is like sex

With the unfolding Bernie Madoff investment scandal still making the headlines there was an interesting interview on 'Wake up to money' this morning with Frank Partnoy, author of a book on Ivor Krueger.

Krueger, who died in 1932, built control of two thirds of the world's matches business and ran a huge Ponzi scheme - a concept familiar to the victims of Madoff's investment offering.

Over the years people have repeatedly been conned by various enterprising individuals - Madoff is just the latest - and it does prompt the thought - why do people still fall for it? Partnoy believes he has the answer:

"In many ways finance is more like sex than science - it's the kind of thing everybody has to figure out for themselves the first time around. We don't build knowledge incrementally - you know Newton and then Einstein and so forth. It doesn't work that way - it really does work more like - here's this epiphany - everyone has to get scammed on their own the first time."

A good soundbite but also, apparently, quite true: if I were to give you the names of some of the businesspeople who have spoken to us over the years when about to succumb to the wily ways of obvious fraudsters, you'd be astonished. But we're not telling, of course.

Meanwhile, if you are going to fall for a scam, best make your investment a small one.