Prologue: The Little Man In Times Square (Or The Best $100 I Ever Spent)
In the early days of Hargreaves Lansdown, before the arrival of the Financial Services Authority, there were occasions when firms like ours were treated to lavish corporate entertainment by investment providers. One of the most memorable was organised by a small life assurance company known then as Target Life. It was an aggressive business which had some good products, even though the investment performance was due in large measure to its willingness to take greater risks than many conventional life companies dared. John Stone, the managing director, was an extremely able businessman who has since gone on to make a second fortune with an offshore life company called Lombard.
The trip which Target Life organised took a number of brokers and advisers to New York and back on Concorde. Even though my partner Stephen Lansdown and I had only been trading for a short time, we had done enough to be noticed in the industry and earn an invitation. John Stone had identified ours as a business that seemed to be expanding rapidly. The trip was a splendid affair, particularly for Stephen who discovered on the plane that he had won the raffle, the prize for which was an upgrade of his hotel room to a suite on the 44th floor of the Hilton, the hotel in which we were staying. (My initial envy later turned to relief when I visited the suite which had floor-to-ceiling windows. As I suffer from vertigo, I couldn’t get within two or three feet of them without my stomach turning over. I could not have slept in that room myself.) The trip included dinner at the top of the World Trade Center and a talk by Art Laffer, the charismatic supply-side economist who advised Margaret Thatcher and Ronald Reagan in the early 1980s.
My personal moment of truth, however, came on our afternoon off. I had wandered up to Times Square and whilst ambling along noticed a man with an upturned cardboard box on which he had dealt three cards, one of them the queen of hearts. He was turning the cards over and switching them around. Three down and outs were gambling on which card was the queen of hearts. Sometimes they got it right, but most of the time they got it wrong. I was bemused by how much money was changing hands and by how much these guys were losing when it was always quite obvious to me where the queen of hearts was. They must have followed this routine three or four times when the dealer looked up after switching the cards around again and said, “You know where she is, don’t you?” Having always been wary of any form of gambling, I would never normally dream of playing such a game. Reluctantly I pointed to where the queen was. Gleefully the man turned over the card to show everyone else in the crowd how accurate my choice had been. Turning to his sidekick he said, “Pay the man $100.” As this was 1984, in the days when the pound was worth close to $1, $100 would be worth at least £250 in today’s money. The sidekick started peeling off dollar bills and, after counting to a hundred, put out his hand towards me. Instinctively, as many people would have done in the circumstances, I reached out to take the money. At that point the dealer said, “You have won the $100, but you can only have it if you can prove you had enough money to make the bet.”
Like a sucker I admitted that I had $100 on me. “Show me,” said the dealer. I carefully counted out $100, holding it, as you can imagine, very tightly indeed. Again the dealer commanded his sidekick, “Give him the $100 then.” As the $100 came my way, he looked up and said, “Now where was she?” I of course pointed to where the queen had been 30 seconds before. The dealer immediately turned the card over to reveal that the queen of hearts was no longer there. Clearly he had repositioned the cards while I was distracted, using sleight of hand (or maybe the queen was no longer there at all – I will never know). Before I knew what was happening, the $100 was out of my hand and the whole gang of four or five, clearly all in league together, were racing off down the street. Discretion being the better part of valour, and not fancying a knife in the ribs in Times Square, I didn’t chase after them.
Having fallen hook, line and sinker for a classic manoeuvre, the original three-card trick, I resolved to take away a lesson that has stood me in good stead ever since. The lesson that everyone should learn is: “If anything looks too good to be true, it almost certainly is.” I told Stephen about my experience and I have no idea how many times since we have had good cause to say to the other, “Remember the little man in Times Square.” I would bet that he has saved us hundreds of thousands of pounds and our clients infinitely more. Back in the UK, the experience was certainly a factor in making us wary of any investments that purported to provide easy and exceptional returns. While some investment schemes of this kind do deliver what they promise, many more, as we will see, are simply variants of the three-card trick, tempting offers that fail to stand up to close scrutiny.