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How to Smell a Rat: The Five Signs of Financial Fraud



How to Smell a Rat: The Five Signs of Financial Fraud

Kenneth L. Fisher, Lara W. Hoffmans

ISBN: 978-0-470-55272-8 July 2009 224 Pages


A timely guide to uncovering financial fraud

2008 and 2009 will be remembered for bear markets, a global credit crunch, and some of the largest investment scams ever. But these scams are nothing new, they've been repeated throughout history, and there will certainly be more to come. But the good news is fraudsters often follow the same basic playbook. Learn the playbook, and know how to ask the right questions, and financial fraud can be easy to detect and simple to avoid.

In How to Smell a Rat, trusted financial expert Ken Fisher provides you with an inside's view on how to spot financial disasters before you become a part of them. Filled with in-depth insights and practical advice, this reliable resource takes an engaging look at recent and historic examples of fraudsters, how they operated, and how they can be easily avoided. Fisher also shows you the quick, identifiable features of financial frauds and arms you with the questions to ask when assessing a money manager.

  • Prepares you to identify and avoid financials cams that could instantly destroy your wealth
  • Contains examples that highlight how financial frauds are committed
  • Provides questions everyone should ask before entering any investment endeavor

With How to Smell a Rat as your guide, you'll learn how to protect your interests and assets from unnecessary losses.

Acknowledgments vii

Introduction 1

Chapter 1: Good Fences Make Good Neighbors 11

Chapter 2: Too Good to Be True Usually Is 39

Chapter 3: Don’t Be Blinded by Flashy Tactics 63

Chapter 4: Exclusivity, Marble, and Other Things That Don’t Matter 87

Chapter 5: Due Diligence Is Your Job, No One Else’s 111

Chapter 6: A Financial Fraud–Free Future 137

Appendix A: Asset Allocation—Risk & Reward 153

Appendix B: Same but Different—Accounting Fraud 157

Appendix C: Minds That Made the Market 161

Notes 195

Index 203

About the Authors 209

With five straightforward rules that would have saved any investor from Bernie Madoff, investment firm CEO and Forbes columnist Fisher (100 Minds That Made the Market) gives readers a secure plan for fraud-proof investing, worthwhile for novices and sophisticated financiers alike. Using the example of everyman “Jim,” a precarious investor navigating shark-filled waters, Fisher presents a clear, fast-paced, tightly organized guide to principles like “Too good to be true usually is,” and “Due diligence is your job, no one else's.” Fully-referenced data, insider details, laser-focused statistical digressions, and the finer points of practical investing keep pages turning. Readers will value the practical, easy-to-follow models of solid, transparent investment strategies and examples from Fisher's experiences as CEO of his own investment firm. Fisher also includes suggestions for further reading and appendices that reproduce previously-published comparisons of different asset allocations, information for small business owners and short biographies of market-movers. Much more than what to avoid, Fisher’s concise guide should be highly illuminating and confidence-building for anyone with a bank account. (Aug.) Starred review (Publishers Weekly, September 2009)

Using well-known examples from recent headlines like Bernard Madoff and R. Allen Stanford along with a bevy of historical scam artists, Fisher details the red flags that should alert investors. They are: advisers who have access to your money; promises of returns that are too good to be true; mumbo-jumbo that takes the place of explaining investing strategy; fake benefits like exclusivity, and relying on someone else for due diligence. (Associated Press)