Fortune Cookie Wisdom

Fred Joseph - Fraud IssuesRecently, a friend and I had lunch at one of my favorite Chinese restaurants.  As always at the end of meal, the server brings the bill along with fortune cookies.  The piece of paper inside of my cookie said “The early bird gets the worm, but the second mouse gets the cheese.”  I actually found this to be a profound statement as it applies to investments.  There are times when it is not wise to rush into an investment decision.

I was reminded of the tactics used by penny stock brokerage firms in order to pitch their junk investments to unsuspecting investors.  Many investors may not remember, but Denver was once considered to be the penny stock capital of the United States given the large number of these types of firms located here.  These firms were typically nothing more than boiler rooms where slick-talking salesmen would tout near-worthless stock.

According to the Essential Guide to Safe Investing, boiler rooms featured rows of telephones used by callers.  Cold callers would phone potential victims randomly, using unscrupulous, high-pressure sales tactics and sometimes false information, to try to sell high-risk stock and other investments.

You should hang up if you receive an unsolicited phone call about an investment and the caller pressures you into making an investment decision on the spot.  You should also hang up if you ask the caller for written information, and he or she refuses to provide it or evades questions.

You can avoid being scammed this way by never investing in anything over the phone without reading a prospectus first and understanding the risks of the investment.  You should also know and feel comfortable with the person attempting to sell you the investment.  One way to establish some level of comfort is to check out the person or firm with the Colorado Division of Securities (303-894-2320) to be sure they are properly licensed.

No reputable, trustworthy broker or investment adviser will pressure you to make an immediate decision about an investment.  If your investment salesperson puts on the pressure, won’t explain things, or rushes you to make decisions, he or she is acting inappropriately.

Bottom-line:  Don’t be the first mouse when making an investment decision.

(Fred Joseph can be contacted at fred.joseph@state.co.us or at 303-894-2320).

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