Bernie Madoff made most the con-artists featured on the CNBC show “American Greed” look like small time operators compared to him. What are some lessons that can be learned from Bernie Madoff and his $50 billion Ponzi Scheme? Many professional traders knew that he was a Ponzi Scheme in the 1990s, but how? What were the clues that indicated that Madoff was not a real trader or money manager? Bernie Madoff stole and lost almost as much money as Warren Buffet or Bill Gates net worth. He may be the greatest con-artist in history.

Here are the real life lessons that Bernie Madoff taught the world:

  1. If you can return 1% a month consistently the world will beg you to manage their money. This is virtually impossible for any length of time with any large sized account.
  2. 10% to 12% annual returns with minimal drawdowns is world class performance and the reason Madoff did so well was that those kind of returns are so rare in the investment and trading world. Real returns are rarely consistent and are almost always a volatile ride in the real world.
  3. There is no such thing as great returns without volatility, losses, and an equity curve with returns on capital.
  4. Greed for consistent returns on their money can blind people to whether a money manager is real.
  5. There is no Holy Grail in trading systems, no system works smoothly across all market environments.
  6. The option market does not have enough volume to support some strategies on the billion dollar scale.
  7. You do not have to be a salesman to get all the business you can handle in the financial world. You simply have to deliver great returns or good consistent returns.
  8. A money manager not being open about his trading strategy is a warning sign.
  9. Some professional traders discovered that if they could not reverse engineer his option trading system through optimization in backtesting then he was not real.
  10. If a trader or money manager appears too good to be true they usually are not real.