How to smell a rat

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How to smell a rat

The Five Signs of Financial Fraud (2009)

This is one of the more interesting books that I read this year. I learnt quite a number of things from this book. If you lack time for reading, this is one of those few books I will recommend you to read.

Here are the 5 signs :
1. Your adviser also has custody of your assets – the number one, biggest, reddest flag
2. Returns are consistently great! Almost too good to be true.
3. The investing strategy isn’t understandable, is murky, flashy or “too complicated” to describe so you easily understand.
4. Your adviser promotes benefits like exclusivity, which doesn’t impact results.
5. You didn’t do your own due diligence, but a trusted intermediary did.

 

Frankly speaking, I like his Appendix C better -it includes some of the famous or infamous characters in the market.

Joseph P. Kennedy : Founding Chairman of the SEC

The Democrats went nuts when Rooservelt appointed Joe Kennedy as chairman of the SEC (Securities and Exchange Commission). Kennedy was an embarrassment to them. In Kennedy’s life, he contributed to his massive fortune by manipulating Wall Street- he was a master manipulator and proud of it. He boasted “It’s easy to make money in this market. We’d better get in before they pass a law against it.”  He’d regularly use his influence to hype a stock – advertise it by trading it, he called it. When folks flooded to his stock, he’d start shorting it as it fell back to a more reasonable valuation.

When Rooservelt was asked about Kennedy, he said openly that “it takes a chicken thief to catch a chicken thief” – implying that Joe was a chicken thief to put it midly. He was the right man for the job because “he knows all the tricks of the trade”. During his stint as the very first SEC chairman, he got very high marks for his accomplishments and he diligently outlaw most of the methods he used to amass his fortune.  He knew what to look for – he just thought through what he would do and got lawyers to write laws against it. In fact,we own most of the modern securities laws to that original chicken thief.

 

 

 

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