How's it Done?

See if you can figure out how this classic con works.

One day you get an unsolicited email from someone who claims to have a secret algorithm for picking stocks. To prove his claim, he gives you one free tip of a stock that will beat the average for the next month. You ignore it, but you remember it.

A month later, the follow-up email says the recommended stock indeed beat the market average. You check, and it's true. The email goes on to recommend a second stock for the coming month. That too beats the average. The same thing is repeated for a third stock.

A fourth email, in the fourth month, asks $1,000 for the next stock tip. Three average-beating winners in a row are unlikely to be chance, so you figure you can make up that $1,000 quickly with the next stock. You pay it. The next stock is a dud. You're out $1,000.

How did the scammer do it? Remember, all three recommended stocks beat the averages. Had the victim purchased any of those stocks he would have made real money.