The Seven Signs Of Scam
It is inevitable. Once you begin to save and invest, you find yourself on direct marketing lists. Soon your mailbox is groaning under a load of offers of mutual funds, personal financial planning workshops and subscriptions to "insider" newsletters.Worst of all, you learn that your phone number is now being shared by prospectors who seem able to dial only after 8 in the evening. Apart from their intrusive quality, these direct marketing tactics share something else. They are the common route of most financial scams.When victims of scams are interviewed, they often focus on how honest the scam artist seemed. Face it, scam artists are lying from the get-go. The victims have to be listening with a little larceny in their own hearts, or the deal won't close. Any scam requires two parties, the pitcher and the catcher. Scams also require that both parties be looking for a little extra something without hard work.As a public service, therefore, we offer our list of basic signs that you are about to be taken.SIGN ONE: A STRANGER CALLSIf a stranger calls with an investment offer (or any type of offer), learn to say no. Before you hang up, tell the stranger that you want to have your name removed from the company's marketing list. Legitimate direct marketers will honor your request. Say "No" and "Remove my name" often enough and the phone interruptions at home will drop dramatically.Of course, there are honest people who call soliciting for worthy causes, but they will be willing to send you information about their offer. If a caller intrigues you, ask for an information packet by mail. Once the information arrives, read it carefully. Check out facts through independent sources. Always be suspicious. Investigate before you invest.SIGN TWO: IT'S URGENTMore fortunes have been lost in haste than have been made through quick action. Rush out of a burning house; sprint for shelter in a storm; flee a psychotic lover, but walk into investments slowly.Research on public markets extending back over almost 400 years shows that successful investors are those who move cautiously, invest for the long term, and rarely panic.SIGN THREE: INSIDER INFORMATIONA frequent pitch from scam artists is that they have insider knowledge to share with you. They will claim secret information about a research breakthrough, a patent that is about to be approved, a merger that is soon to be made public. Such things are possible. They are usually a matter of public record and industry debate long before they become done deals. Where information is truly "inside," it is illegal to communicate it privately. People go to jail for things like telling inside news to a cousin who then profits from market reaction.You can use personal skepticism as a healthy guard against such temptation. Ask yourself this question, "If I knew this secret, and I believed that it could make millions on the market, would I be calling me at 9 o'clock at night to talk about it?" Of course not! I would be borrowing every penny I could get my hands on to make a killing before anybody else finds out what I know!SIGN FOUR: CASH OR CREDIT CARD, PLEASENever send cash to anyone. Never send a check to an organization you haven't investigated first. Never give your credit card number over the phone unless you made the call yourself. Even these three rules will not protect you completely. Scam artists will pressure you to send cash immediately. Some will even offer to send "an official courier" to pick it up. Give up your credit card number and it will be in Europe, along with your credit rating, before midnight.No investment decision is so urgent that you should ever consider paying for it immediately. See Sign Two above.SIGN FIVE: CAN YOU KEEP A SECRET?Another popular scam is the "secret" product. No one knows about this, they will say. If you express doubt, they will remind you that, "No one knew about Starbucks coffee when it first opened." Or no one knew about Boston Market, or no one knew about Apple computers. First, lots of people knew plenty about all three companies before they went public. Do your research. Second, be the healthy skeptic again. "If it's as good as you say, why are you wasting your time talking to me?"SIGN SIX: IT'S TOO COMPLICATED TO EXPLAIN"It's one of those mega-watchamacallits that fits into a computer that makes the pixels softer edged." This will be followed by, "I'm not very technical, but they tell me this will fly. You want to be in on the ground floor."Peter Lynch, founder of the famously successful Magellan Mutual Fund at Fidelity, says that you should never invest in something you can't understand. No point in embellishing on that advice.SIGN SEVEN: IT'S ON THE INTERNETWhy is it that otherwise rational people will ignore the advice of legions of scholars, of dozens of men and women who have built fortunes through cautious investing, of countless how-to books on investing, then act on a tip they read on some Web site? What is the appeal of advice from some faceless, nameless, untraceable chiphead whose background, experience and motives are unknown?That is a question for human psychologists to ponder. The Securities and Exchange Commission (SEC) is busy trying to research the New Age scams that are emanating from the Internet. In the short run, however, these scams may already be protected by two laws: The First Amendment, protecting free speech and discussion on the Internet, and the oldest commercial law, caveat emptor.