Sunday, March 12, 2006

Six Signs It's a Scam (via the Motley Fool)

I'm fascinated by scams - I could read about the ways people fool and get fooled by each other for hours. Some of it is the little bit of larceny in my own heart (I love putting practical jokes over on people). It all started a few years back, when I taught Personal Finance, I would do a regular feature called the "Scam of the week" where we'd pick apart a common scam. My goal was to get my students (mostly non-finance and non-business majors) to look at things with a more cynical (sorry, that would be "discriminating") eye. If I were teaching the class today it would be a lot easier, since the Web would give me no end of material.

My guess is that regular readers of blogs on average a bit more sophisticated and well informed than the general public, so they're probably also less likely to fall for scams. However, anything worth saying is worth repeating (repeatedly), so here's another "don't get fooled by scams" post. The Motley Fool has a list of six indicators that you might be looking at a scam:
  1. The promise of low risk and high gains.
  2. Warnings that if you don't act now it'll be too late.
  3. Predictions of the future
  4. Failing the "background check".
  5. No prospectus or financial statements
  6. A hot "inside tip"
Read the whole thing here.

These six indicators aren't exhaustive, but they are a good start. IMO, the first two cover the vast majority of scams. Two good rules are that if something looks too good to be true, it probably is, and that anything you can't take the time to analyze is best left alone.

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