Investing Scams
With the rise in the stock and commodities markets there has been a rise in investment scams. The Wall Street Journal reported that more than 25,000 people have been burned just in currency trading scams the last 5 years. Add in the scams related to rare coins, metals and especially penny stocks and you have many people being cheated. So here are a few rules to follow to help you avoid investment scams.
- Ignore your impulse for greed
This is the hardest one. Someone says 1,000% profit and it speeds up your pulse a little. And it’s this, more than anything else that lets people be cheated. Never make an investment based upon emotion. One way to accomplish this is never to make a snap judgment about something. Give yourself 24 hours to think about it, and talk it over with a family member or friend first. - Realize that people lie
People lie. We tend to trust others, it’s in our nature. But people will tell either bald untruths, or skew the facts such that it’s the same thing. My line is “He didn’t lie, he just distorted the facts beyond all recognition”. And because people lie, the only way to verify something is to have an independent (and that means not their website) confirmation of what someone tells you. If you can’t confirm it, assume it’s not true. - Never respond to any cold calls
It doesn’t matter if it’s from Fred’s Investments or Merrill Lynch. If someone is calling you up out of the blue, it’s extremely unlikely that it’s a great investment. You have to work your tail off to find great investments. They never come and find you. Once, many years ago Morgan Stanley called me up at home to buy a stock they wanted to unload. I had no relationship with Morgan Stanley, I have no idea why they called. So I took a look. Turns out that Morgan Stanley was selling the stock out of their own inventory. So I shorted it instead, and made a nice little profit in about 2 days. This rule is doubly true for unsolicited email. - Never invest in anything you don’t understand
When someone is talking to you about a really complex investment, that’s where there is room for you to be fooled. All legitimate investments can be explained in relatively simple terms. If Einstein was able to explain relativity so that everyone could grasp the concept, someone had better be able to explain that limited partnership to you.
Follow those rules and you’re much less likely to be victim of an investment scam.