Financial Freedom SG

The past few weeks have been full of news about the fallout from the actions of Tiger Woods. There is some sort of symmetry with the fall of Bernie Madoff who fell hard from being a very well-respected figure to the most hated figure of the 2007-2008 financial meltdown.

The hardest thing to win is trust. And it is also the easiest to lose.

Tiger Woods lost it in spades through his escapades and his initial attempt to squirm out of admitting what really happened and then later his non apology before all the dirt was dug. Together with Madoff, they have lost all credibility with the public.

So how do you spot such frauds or con-artists? I think it is pretty hard. Before they became disgraced, both were admired figures in their fields and had a squeaky clean image.

I remember the movie, The Sting, by Robert Redford and Paul Newman which was one classic movie and thinking that it will be difficult not to be duped if there people are really out to con you.

Ken Fisher recently wrote a book, “How to Smell a Rat” which list the 5 signs of financial fraud. I’d probably take a look at it in the bookstores to see if it is worth getting. From some of the reviews on Amazon, the book seems straightforward and simple.

I have tried to come up with 5 simple things to look out for a possible investment fraud:

1. Too good to be true- anything that promises high returns without high risks is an immediate red flag for me.

2. Too complex to understand/ Too little clarity- if something comes to you that you have to read for more than 5 minutes and still not understand, this is another clear sign of an investment fraud. If you go and read the prospectus of the structured investments sold to the public before 2007, that is a complex document to make you not understand.

3. Too much hard sell- if it has to be advertised in the papers every single day or require an aggressive sales forces who push the products in your face, it is probably something you can do without.

4. Too little time to think- if they want the answer from you now, in a second or in a minute and forces you commit right now before the “special offer” goes away, it is probably something that is designed to take your money before you have completely figured it out or checked it with someone else.

5. Too obscure a product- it is easier to sell the fraud to the victim if it is something no one has heard of it or if there are so many (like the many unit trusts/mutual funds) that it becomes confusing to you and “easier” that you ask for help from an “expert”.

If you cannot figure out how they can earn the returns promised, it is probably one big fraud that you should walk away.

My house modem went kaput the past few days and so there was no posts till it was replaced yesterday by the service repair man who works on a Saturday.

Also, I will be going on a trip next week for 2 weeks so may have limited internet access. So the blog posts for the next 2 weeks should be less than the norm. Normal services resumes on the 4th of January.

Have a fraud free 2010.

Source:

1. Image from Amazon site on the movie “The Sting”.