At this point in my career, I have read dozens of books on finance and economics, some of which I would only recommend to my colleagues as the content requires some understanding of financial markets and concepts. But recently I came across one that I think everyone would enjoy, Don’t’ Fall For It: A Short History of Financial Scams by Ben Carlson. It is not only entertaining but educational as well.
Carlson goes through a litany of individuals who have either been scammed or did the scamming themselves. Some of the stories are recent; he talks about Elizabeth Holmes and her bogus health care tech company Theranos, which attracted investors the likes of Robert Kraft, Carlos Slim and Rupert Murdoch! Others date back over 200 years. Most of the victims of these frauds are not famous however, most are everyday people who cannot afford massive financial mistakes. Some of the stories are heartbreaking, but as with any train wreck it’s hard to look away.
The best part about this book in my opinion is that it gets the reader thinking about his or her own biases. We all have them. We all believe that there is no way that we could be a victim of fraud. The reality is that when money is involved, we are all capable of being deceived. That’s why I really appreciated the last chapter in Carlson’s book. Here, he outlines six signs of financial fraud:
- The money manager has custody of your assets: This is exactly how Bernie Madoff pulled off the largest Ponzi scheme ever. Not only was he the advisor but he oversaw the production of client statements as well. This is sort of like the fox watching the hen house.
- There is an aura of exclusivity in the pitch: Carlson shares one of my favorite reality checks out there: Good investing is typically boring!
- When the strategy is too complicated to understand: “Don’t let your ego get in the way of your financial health.” If you don’t understand it, don’t invest in it.
- When the story is too good to be true: Play devils advocate for every investment pitch, and I do mean every pitch!
- When the returns are ridiculously good: Returns that are high and consistent should always be a red flag.
- When they tell you exactly what you want to hear: “Do your homework and don’t take anyone’s story at face value simply because you want to believe it.”
I highly recommend Carlson’s book. It’s a very quick, easy read and you won’t believe the stories he tells!