INDEX

Active managers, 43, 75

Actively managed funds, 75–76, 82

mutual funds, 66

Affinity fraud, 134

George Theodule’s $30 Million, 134–136

Affordability, 67

AJ Discala $300 Million pump-and-dump scheme, 137–139

All-or-nothing option (see Binary options)

Annualized dividend, 47

Asset allocation, 11, 30, 108

Average down strategy, 54–56, 95

Bad funds, 8–86

Bear market, 58–59

Behavioral biases, 93–94

Bias(es), 9–10

availability, 109–110

behavioral, 93–94

emotional, 114–115

extrapolation, 70, 104

familiarity, 105–106

home, 105

illusion of control, 108–109

local, 105

misattribution, 114

overconfidence, 100–103

recency, 70

representative, 103–104

self-attribution, 58

self-control, 99–100

social, 111–112

survivorship, 86

Binary options, 154

broker, 154–155

fraud, 154

investor complaints, 155–156

Swindled Investors Out of $10 Million, 156

Bitcoin, 117

blockchain, 159

BitConnect $2 Billion Fraud, 159–163

BitConnect coin (BCC), 160

Blackrock, 67

Blockchain technology, 159

Bond funds, 68

Break-even effect, 96

Broker, 154–155

Bull market, 58–60

“Buy low, sell high” strategy, 53–54, 100

Buy-and-hold strategy, 46, 49

BuyandHold.com, 19

Capital gains distributions, paying taxes on, 78–79

Capital gains tax, 27

rate, 50–51

Capital loss, 48

Certificates of deposit (CDs), 7

Chief executive officer (CEO), 152

Closed-end funds (CEFs), 68–69, 72–73

Closed-end funds, 87–89

Closet index funds, 82–83

CodeSmart, 138

Cognitive dissonance, 55–56, 110–111

Commodity Futures Trading Commission (CFTC), 156

Compound interest, 24

Cryptocurrency scams, 157

BitConnect $2 Billion Fraud, 159–163

cryptography, 157–158

prevalence, 158–159

Cryptography, 157–158

Currency market (see Foreign exchange market (FX))

Cyberspace, 150

Decision frames, 106–108

Digital option (see Binary options)

Direct Stock Purchase Plans (DSPs), 19

Disposition effect, 98–99

Disruptive ideas and technologies, 65

Dividend reinvestment plan (DRP), 14

Dollar-cost averaging, 19

“Dotcom” firms, 117

Double coverage, 89

Dow Jones Industrial Average (DJIA), 74

Due diligence, 32–33

Dutch Billionaire and €100 Million prime bank fraud, 171–173

Emotional biases, 114–115

Employer-sponsored retirement plan, 25

Employer-Sponsored Retirement Plan, 25–26

Equity funds, 68

Erosion of returns, 48

Excessive conservatism, 15

Exchange-traded funds (ETFs), 22, 28, 35, 37, 66, 69

actively managed funds, 75–76

closed-end funds, 87–89

closet index funds, 82–83

high expense, 90

indexing, 76–78

issues with, 89–90

past winners, 69–71

paying taxes on capital gains distributions, 78–79

pitfalls, 67

risk level, 81–82

window dressing, 80

Exential $200 Million currency market fraud, 152–153

Expense ratio, 73

Extrapolation bias, 70, 104

Ezubao’s $9 Billion Ponzi Scheme, 128–130

Fake ETFs, 90

Familiarity bias, 105–106

Faulty investment analysis, 51

“Fear of missing out” phenomenon, 113

Federal Bureau of Investigation (FBI), 155

Fidelity Investments, 67

Financial advisor, 17

Financial crisis, 127

Financial experts, 60–62

in media, 103

Financial fraudsters, 122

Financial Industry Regulatory Authority (FINFA), 135, 175–176

Financial Times, 173

5-star funds, 84–85

Fixed rate investments, 174

Fixed return option (see Binary options)

FOLIOfn, 19

Foreign currency trading fraud, 150

Exential $200 Million currency market fraud, 152–153

FX, 150–152

Foreign exchange market (FX), 150–152

Foreign investment products, 125

Forex (see Foreign exchange market (FX))

Fortune magazine, 66

Fraud, 149–150

binary options, 154–157

online platform, 163–167

precious metal, 167–170

prime bank, 170–173

promissory note, 173–177

Fraudulent online investment practices, 163

Fraudulent schemes, 125

Front-end sales load, 72

Funds, 67–68

closed-end, 87–89

closet index, 82–83

flows, 70–71

investors, 75

Funds-of-funds (FOFs), 77

FxTrader signals system, 131

Gambler’s fallacy, 104

George Theodule’s $30 Million Affinity Fraud, 134–136

Google-owned video sharing platform, 162

Great Depression, 127

Greed, 53, 114, 147

Gross return, 26

Halo effect, 123, 125

Hedge fund, 77

Herd behavior, 112

Herding, 53, 112–113

Heuristic simplification, 94

High expense

ETFs, 90

mutual funds, 73–75

High yield investments fraud (HYIPs), 141–142

ZeekRewards HYIP fraud, 142–144

High-fee funds, 75

Higher management fees, 82

Illusion

of control bias, 108–109

of knowledge, 102

Index fund, 29, 73–74, 79

Index investing, 89

Index mutual fund, 76

Indexing, 29, 66, 76–78

Inflation, 28–29

Informed investors, 21

Initial coin offerings (ICOs), 158

Initial public offerings (IPOs), 62, 138

Institutional investors, 57, 103

Insurance

agents, 175

companies, 57

International companies, 70

Internet, 163

trading platforms, 155

Inventor anonymity, 159

Inverse ETFs, 90

Investing, 36–37

avoidance in business, industry, or security, 21–22

on regular basis, 18–19

time for, 17–18

Investing knowledge, lack of, 6–8

Investing pitfalls (see also Self-inflicted pitfalls; Stock pitfalls), 5–6

avoid investing in business, industry, or security, 21–22

confusing past returns with future expectations, 20

failing to have enough indexing, 29

identifying proper investment strategy, 12–13

ignoring inflation, 28–29

ignoring taxes, fees, and expenses, 26–28

improper diversification, 22–23

investing on regular basis, 18–19

issues with time horizon, 13–14

lack of investing knowledge, 6–8

lack of investing plan, 10–12

opting out of employer-sponsored retirement plan, 25–26

postponing opening retirement account, 24–25

psychological biases, 9–10

research, 32–33

reviewing and rebalancing long-term portfolio, 30–32

risk tolerance, 15

risk-return tradeoff, 15–17

time for investing, 17–18

underestimating abilities, 8–9

Investment Company Institute, 73

Investment policy statement (IPS), 11

Investment schemes

affinity fraud, 134–136

HYIPs, 141–144

investment fraud, 121–122

microcap fraud, 139–141

Ponzi scheme, 123–130

pre-IPO fraud, 144–146

psychological tricks, 122–123

pump and dump scheme, 136–139

Pyramid scheme, 130–133

Investment strategy, 12–13

Investments, 142

fraud, 121–122

profits, 132

Investors (see also Unsuspecting investors), 38–40, 45

enthusiasm, 116

funds, 75

institutional, 57, 103

knowledgeable, 124

optimistic, 115–116

overconfident, 101–103

pessimistic, 116

retail, 5–6, 33

savvy, 3, 14, 44, 54, 66, 81

Invitation-only investment club, 131

JSG Capital Investments $10 Million pre-IPO fraud, 144–146

Large cap companies, 68, 70

Legitimate promissory notes, 174

Leveraged ETFs, 90

Liquidity, 68

Loser stock position, 98

Loss aversion, 95–97

Low-cost index mutual funds, 35, 66

Low-priced stocks, 56–58

Management fee, 73–74

Market

capitalization, 8

downturns, 54

sentiment, 59

timing, 48–50

value, 39

Market cap (see Market—capitalization)

Medallic Art Company (MACO), 68

Merged fund, 86–87

Micro cap firms, 68

Microcap fraud, 139–140

VGTel $15 million Penny stock fraud, 140–141

Mid-cap firms, 68

Misattribution bias, 114

Miscalibration, 100–101

Momentum effect, 45

Money

market accounts, 7–8

treasure, 165

Morningstar, 72

“Morningstar Mirage, The”, 85–86

Morningstar Risk Rating, 84

Multi-level marketing programs (MLM programs), 130

Municipal bonds, 27

Mutual funds, 28, 57, 66

actively managed funds, 75–76

bad funds, 85–86

closet index funds, 82–83

companies, 67

family, 86

high expense, 73–75

indexing, 76–78

merged fund, 86–87

past winners, 69–71

paying mutual fund loads, 71–72

paying taxes on capital gains distributions, 78–79

pitfalls, 67

ratings, 84–85

risk level, 81–82

window dressing, 80

NASDAQ, 16

National Basketball Association (NBA), 175

National Football League (NFL), 175

Net asset value (NAV), 66

Net return, 26

New York Stock Exchange, 16, 57

Nominal returns, 28–29

Northwest Territorial Mint (NWTM), 168

NWTM $25 Million precious metal Ponzi scheme, 168–170

Oak Ridge Small Cap Growth Fund (ORSCG), 79

Online finance development, 164

Online platform fraud, 163

China’s online finance sector, 163–164

P2P lending platforms, 164–165

Quianbao $11 Billion online platform fraud, 165–167

“Only-for-you” schemes, 121

Open-end funds, 68–69, 71–72, 81

Optimistic investors, 115–116

Over-the-counter (OTC), 137

market, 139

Over-trading, 47–48

P/E ratios, 68

Passively managed mutual funds, 79

“Pay yourself first” strategy, 100

Peer-to-peer (P2P), 159

lending scheme, 128

Penny stock fraud, 139

VGTel $15 million, 140–141

Penny stocks, 56–58, 139

Pension funds, 57

Ponzi scheme, 123–130, 168–170

Ezubao’s $9 Billion Ponzi Scheme, 128–130

World’s Largest Ponzi Scheme, 126–128

Portfolio drift, 31

Portfolio strategy, 6

Pre-IPO fraud, 144

JSG Capital Investments $10 Million pre-IPO fraud, 144–146

Precious metal frauds, 167–170

Price-to-earnings ratio (P/E ratio), 40

stocks with low, 40–42

Prime bank fraud, 170–173

Procter & Gamble, 116

Professional management, 67

Promissory note fraud, 173–175

Success Trade Securities $14 Million, 175–177

Promissory note fraud, 173–177

Pump and dump schemes, 57, 136–137

AJ Discala $300 Million, 137–139

Pyramid scheme, 130

MLM programs, 130–131

WinCapita Pyramid Scheme, 131–133

Quianbao $11 Billion online platform fraud, 165–167

Real returns, 28–29

Record filing, 165

Redemption fee, 72

Regret, 98

aversion, 98

of commission, 97–99

of omission, 97–99

Representativeness heuristic, 103

Research, 32–33

Retail investor, 5–6, 33

Retail Profit Pool, 143

Retirement account, 24–25

Return of capital, 89

Risk

aversion, 95

level, 81–82

risk-return tradeoff, 15–17

tolerance, 15, 30

Roth Individual Retirement Account (Roth IRA), 25

Russell 2000 Growth Index, 79

S&P 500 Index, 44, 73–74, 76

Savvy Investor’s Guide to Avoiding Pitfalls, Frauds, and Scams, 1–4

Savvy investors, 3, 14, 44, 54, 66, 81

Securities and Exchange Commission (SEC), 71, 156, 158, 171

Self-inflicted pitfalls (see also Investing pitfalls; Stock pitfalls), 93

availability bias, 109–110

cognitive dissonance, 110–111

decision frames, 106–108

emotional biases, 114–115

familiarity bias, 105–106

herding, 112–113

illusion of control bias, 108–109

loss aversion, 95–97

overconfidence bias, 100–103

regret of commission, 97–99

regret of omission, 97–99

representative bias, 103–104

self-control bias, 99–100

skewed beliefs and judgments, 115–118

social bias, 111–112

Self-serving bias (see Self-attribution bias)

Selling short, 77

Selling stock, 50–51, 53

ShareBuilder.com, 19

Short selling, 59

Short-term performance, 46

“Signal clock” software program, 131

Skewed beliefs and judgments, 115–118

Small cap companies, 68, 70

Smart Investment Management Services (SIMS), 135

Smart money, 45–46

Special dividend, 47

State Street Global Advisors, 67

Stock index fund, 37

Stock market, 39, 41

Stock pickers, 44

Stock pitfalls (see also Investing pitfalls; Self-inflicted pitfalls), 35

averaging down, 54–56

bull market, 58–60

“buy low, sell high” strategy, 53–54

buying low-priced stocks, 56–58

buying stocks, 40

chasing performance and yields, 45–47

financial experts, 60–62

great company with great stock, 38

investing and gambling, 36–37

market timing, 48–50

over-trading, 47–48

selling stock, 50–51

small losses, 52–53

stock picking, 42–44

stock’s value, 39–40

stocks with low price/earnings ratios, 40–42

Stock prices, 54

manipulation scheme, 138

Success Trade Securities $14 Million promissory note fraud, 175–177

Tax overhang, 88

Tax-free municipal bonds, 27

Taxes, 26–28, 50–51

Ted Seides of Protégé Partners, 77

Time horizon, 30

issues with, 13–14

Tracking systems, 47

Trading costs money, 76

Trading software manipulation, 155

Transaction costs, 51, 90

Trial-and-error plan, 10–11

12b-1 fee, 74

Unrealized capital gains, 79

Unsuspecting investors

binary options fraud, 154–157

cryptocurrency scams, 157–163

foreign currency trading fraud, 150–153

fraud, 149–150

online platform fraud, 163–167

precious metal frauds, 167–170

prime bank fraud, 170–173

promissory note fraud, 173–177

US Securities and Exchange Commission (SEC), 123

Vanguard Asset Management, 67

Vanguard S&P 500 index fund (VFINX), 77

Wall Street Journal, The, 85–86, 159

WinCapita Pyramid Scheme, 131–133

Winner stock position, 98