How can you avoid scams? Every now and then I hear stories of people—acquaintances, relatives, or friends—who made a particular investment and it went badly, or who fell victim to a scam. When you delve into the details of the circumstances surrounding the event, I always realize that the same recklessness, the same mistakes, are committed. It is sad to see, at times, how people who earn their money through great effort lose it, or how people who have a great deal let themselves be swept up in bad deals. These misfortunes reach people of every social stratum, age, and academic background. I have confirmed that intellect does not provide better skills in business, nor does it grant any advantage; even the cleverest can end up prey to the silliest scams or fall into the worst deals. That is why I have compiled 10 rules that can serve as a guide to increase your chances of making better choices in business, entrepreneurship, or investments, and, at the same time, of not falling victim to most of the scams you may come across. Some rules will be quite obvious and others perhaps not so much, but bear in mind that sometimes it is the obvious that people tend to ignore.

1. Money is not obtained without work

There is a deeply rooted idea in today's society that it is possible to earn money without working—that there exist paths, methods, magical procedures that will lead you to wealth in exchange for nothing; basically, people believe that money will arrive as if by magic, without any effort or risk. Moreover, it is believed that these methods or paths for amassing large sums of money in a short time are out there, in plain sight of everyone, in Internet advertising, newspaper ads, a post on some social network, a website, a flyer on the street, or that they come by way of some 'good' gentleman or lady you met recently who proposed to you the deal of the century... There is no shortage of forms and methods; the constant is that they offer the public the chance to earn money without doing anything, without any risk, and with significant returns. What you must understand is that the only way to obtain money is by working; if you have not grasped that simple truth, I dare say that in all likelihood you will stumble in your life. There are people who, owing to their exceptional ability, their experience, their knowledge, or their social connections, seem not to work, or do not appear to work as much as others who strive greatly at what they do while earning low pay. Many people are born with above-average talents that grant them an advantage over the rest. There are others who devote their life, their energy, and their effort to polishing their skills at a particular task. Individuals who devoted their life, or a large part of their time, to studying or working at something acquire knowledge or experience; and still others simply, by virtue of the connections or the positions they occupy in society, possess advantages that allow them to profit. All the cases mentioned above require, to some degree, an investment of energy, effort, and work, and eventually the companies or people who lack it and have enough money will seek out the individuals who possess the skills, the knowledge, the experience, or the social connections to set their interests in motion. I can name two ways someone can obtain money without working: by doing what they love, or by stealing. The first comes from that famous saying by Confucius:

Choose a job you love, and you will never have to work a day in your life.

The second: if you are a swindler, a con artist, a trickster, or a corrupt individual, you may obtain money without working—with the risks and penalties that entails, of course. Nevertheless, I must still acknowledge that whether you do something you love or not, you are valuable and you are compensated because you give something in return, and that 'something' involves work in some way. On the other hand, swindlers, thieves, or corrupt individuals must also invest energy and time in how to carry out their misdeeds, so even they work in a certain way—while causing harm to others.

2. Do not believe in success stories or short-term gains

Something I might criticize about today's society is that people love stories of effortless, sudden success, of strokes of luck. Someone set up a web page or a blog and earns money; or designed a mobile app and has many downloads; or left the country and did very well; or created a YouTube channel and earns enough money; or because they began selling a certain product and made a fair amount... By believing—and even publicizing and giving credit to—these fallacies, they feed that image that success is obtained easily, without effort, and that, furthermore, if you do the same thing those people did, you will achieve it quickly. What those people do not see is that whoever set up the web page or the blog had to strive quite a bit to create quality content so that the page would be visited, or had to invest a great deal of time or money in getting their site to many people, or had to invest many hours in learning how to configure it and make it visually attractive. The person who made the mobile app had to learn programming and understand users' needs for it to become popular; they had to make many versions until it was stable and wait a long time before turning a profit. They do not see that the person who left the country perhaps went through many difficult moments before finding a job, or had to face a new language, a new climate, or a place where they had few connections. They do not know that the person who posts videos on the Internet at least took the time to edit the video or configure it, to think up distinctive, enjoyable, or relevant content for people, and that before that they had been doing the same thing many times until they finally built a large audience. They overlook the fact that the person who began selling a particular product or service, before earning money, had to convince many people that what they offered was useful or necessary, and that perhaps many sales fell through and many people ignored them for a long time before seeing results. That is why it is important to make clear to people in general the importance of not underestimating the effort of those who succeed. We see the results—sometimes sooner than we expected—but almost always we have no idea of the effort it took them to obtain those results. So the next time you hear those fairy-tale or movie-like stories again, begin to reflect on everything that lies behind that story.

3. There is no investment without risk

Risk is associated with every decision we make in life. Among those decisions are the investments we make. In simple terms, we can define risk as the probability of obtaining an adverse outcome. Knowing or measuring the risk of an investment is vital in deciding whether or not to undertake it. In fact, there are professionals devoted to studying mathematical models to estimate the risks associated with certain commercial operations. The world of banking, the stock market, and financial business is full of them. But to know the risk of an operation you need not be a mathematician or a business guru; you only need common sense and some grounding in basic economics. Every investment, business, operation, or transaction that promises you juicy returns necessarily conceals high risks. Risks tend to be proportional to the gains. The greater the risk, the greater the money you obtain. That is why, in the world of betting, the one who places their money on the most improbable option wins the most money; for if everyone knows that a certain outcome is very likely to happen, they will logically choose the option that guarantees they will not lose money, or that they will recover it. Safety, or low risk, in this context is always associated with small gains, with modest expectations. That is why the world belongs to those who take risks, because the risk-takers know that by playing it safe they will not obtain much benefit. You must be aware of this rule at all times. You cannot expect high returns in a venture without risk, because it is illogical. Any decision you make in which you expect to obtain something significant in return, rest assured, involves a high risk, and this will be proportional to the magnitude of the gain you expect. That is why it is very important that you identify the risks involved in what you do, and once those risks are recognized, you will see whether or not you wish to assume them.

4. Do not believe in the selfless

There are people who go through life paying heed to good Samaritans, to selfless individuals who help others obtain money and benefits in exchange for nothing; to disinterested salespeople who do you a favor, and to 'friends' who seek only your well-being. Where money is concerned, there is always an associated interest. When money is involved, people act motivated by obtaining something in return. If you do not accept this truth, hard times may await you. Devote yourself to analyzing the motivation of others, their real interest, and then you will be able to determine whether the interests of the other person do not harm your own, whether the conditions are fair or unfair, or indeed whether the other person is acting in good faith. Determining others' interests will undoubtedly make you sharper in business, and you will be able to seize deals or uncover scams quickly.

5. Obtain all the information possible

As the saying goes: information is power—but it tends to be powerful when many people ignore it. Before any venture or decision you make, the first thing you must do is gather all the information possible about what you intend to do. The better informed you are about what you plan to do, the greater the chances that it will come to a good end. Your acumen and capacity for research will undoubtedly grant you a very clear advantage that will reward you with wise decisions and excellent results. The more important the venture, the greater the amount of information gathered ought to be.

6. Read the contracts, analyze them, and be clear on all the conditions

That old matter of not reading the fine print is a classic. It is very important that, in any operation you carry out, you devote a reasonable amount of time to reviewing what you sign or what you accept. To be clear on the conditions under which you will or will not obtain money, the requirements, the clauses, the exceptions. Being aware of all the pertinent documentation will ensure that you are cognizant of the implications of the decision you are about to make. The more important a venture, the more relevant this rule becomes.

7. Do not get emotional

It is very important not to be emotional when it comes to buying something, making a deal, or listening to a proposal. You must bear in mind that those who try to convince us have surely honed their strategies for enhancing the qualities of what they offer, for deceiving you or leading you to make deals or purchases that, under other conditions, you would not give in to. Sales, in large part, apply many principles of psychology, manipulating people's desires. So getting emotional in a given situation that involves money will probably lead you onto the terrain where others are waiting to use you. Advertising strategies, signs, web ads... every good piece of advertising is meticulously designed to attract you, to play with your feelings and, in that vulnerable state, to sell to you or swindle you.

8. Halt the feeling of urgency

It goes hand in hand with the emotions; however, this rule deals with a specific case. Many businesses, products, or swindlers will try to convince you that what they offer, besides being necessary, is urgent—that you must make the decision as soon as possible and that, if you do not, you will lose a great opportunity. The discourse, or the dynamic, is designed to alter your priorities and place what they offer first. That is why certain commercial establishments position themselves in strategic locations, or products use certain colors, to heighten that sense of urgency. In my case, when I feel a very strong need to buy something that until recently was not among my priorities, I think it over several times, at least twice, and if after so much reflection I have logically arrived at the conclusion that making the purchase is a good decision, then I make it. Sometimes this can take minutes, hours, or even days, but the mere act of stopping to think will be good for controlling impulses. In time you will realize that certain things were not really necessary after having reflected on them for a while, or that there were better options—something you would not have had the chance to see had you not stopped to think. So the next time something plays with your sense of urgency, do not be impulsive, and give yourself time to think with a cool head. I do not say it will be easy, since the strategies for attracting customers or luring people in order to swindle them are ever more refined and creative, but reflecting on what you are about to do will undoubtedly give you the advantage. I must clarify that many times in life you will come across opportunities or deals that you need not think much about in order to seize them, but here is the catch: if a deal truly represents a unique opportunity, it is very unlikely that a person would come to you selflessly to entrust it to you. You will have to analyze the situation and their interests in order to deduce whether the matter really looks promising. When one finds an opportunity of the sort that is hard to come by, very few people have noticed it, or perhaps you may be the first to notice it; therefore there is no advertising, there are no comments, people ignore it—only you have noticed. That the above should happen is very unlikely; in fact, this phenomenon can be associated with what in economics is called an arbitrage opportunity, and these have a short lifespan most of the time, because when the market corrects itself, or when people identify the opportunity, it disappears and is seized by only a few.

9. Be aware of the logic of profit margins

As was noted in an earlier rule, large profit margins in an operation betray a high risk. But there are occasions when a venture may be very well structured, everything well explained and orderly, and you have little or no reason to distrust it. You have already done your research, you have all the information, and you have thought it over several times; there is a credible term within which your money will be returned, and you have deduced the interests behind the whole operation. For this case, what I propose you do is build a table of relative profit margins. What do I mean? Let us say that a certain venture proposes a gain of 30% over a period t. You, for your part, learn that a person who does an ordinary job receives compensation for their services of 6% over the same period. You verify that a highly qualified professional can receive 13% over that period t. You know that a bank investment over that period can yield an 8% return, and that on the stock market or in some financial operation subject to risk one obtains at most 7%. What you have done is verify the opportunity costs, but even more than that, you have realized that over that period t, according to your research, the highest return one can probably receive in an operation is 13% over that period. With that information on the table, the 30% they are offering you is well above the average, and if similar ventures do not obtain the same, then there is something odd about that deal and you should look into it—because either they are geniuses who found something uncommon, or it is simply a scam.

10. Invest only in what you know

It seems simple, but it is incredible how, over time, we realize that we invest money in things we do not know, because we believe that, being different, they will achieve a better result. In particular, what I have learned from my experience is that it is always better not to dabble too much, and instead to invest seriously and in greater quantity in the things we know, in those at which we are more skilled or have more talent. By knowing more and mastering the field, we have more experience and will know how to choose well and come out unscathed when circumstances are adverse. I have seen friends and relatives invest in things they have no idea how they work and lose all their money on it, when they could well have done so by buying assets to reinforce those economic activities that have always brought them money. It is always good to experiment, to try new things, but this must be done within certain limits and assuming the risks involved. There is a rule in finance that says that the older you are, the more you should reduce your risk—something that is logical, because when you are young it is the best time to take risks, try new things, and make radical changes, since you are supposed to have time to set things right if something goes wrong and thus improve in the future. But as age advances, you must become more cautious and conservative, and here investing only in what you know becomes vital, because with the experience acquired, few things will be able to deal you a setback if you invest in something familiar. © Alejandro Guipe | All rights reserved.