Theranos is a perfect example of how good storytellers are the best conmen.
bloomberg.com/view/articles/…
bloomberg.com/view/articles/…
Once we have been charmed by the story and fallen in love with the storyteller, confirmation bias will kick in to ensure that no data or counterview can change our faith in the fantastic story.
One of the most common responses we get when we make a case that a company is a complete fraud is "But XYZ is an investor." The widely held view is that smart people or large institutions cannot be fooled.
Theranos (also Valeant and many other recent frauds) should shatter this myth. Their shareholders had both the intelligence and resources required to figure out the fraud. But the story was too powerful. So they missed issues that were fairly obvious to others.
All of us have our blind spots. Over a long investing career even the best investors will occasionally end up investing in a complete fraud. That's just a statistical certainty.
When there are red flags pointing towards a potential fraud, the existence of a marquee investor means nothing. Infallibility should never be assumed.
