The Savvy Investor's Guide to Avoiding Pitfalls, Frauds, and Scams by Baker, H. Kent -- Read -- Imperial Library of Trantor

Index

Cover Title Copyright Contents About the Authors Acknowledgments Introduction to the Savvy Investor’s Guide to Avoiding Pitfalls, Frauds, and Scams 1. Common Investing Pitfalls that Can Separate You From Financial Security and Success

Pitfall 1. Failing to Learn about Investing: How Can a Lack of Investing Knowledge Cost You a Fortune During Your Lifetime? Pitfall 2. Underestimating Your Abilities: Is Being a Savvy Investor Only Reserved for Rich, Sophisticated, or Professional Investors? Pitfall 3. Thinking You’re Special: Are You Oblivious to the Fact that Your Psychological Biases Can Make You a Terrible Investor? Pitfall 4. Not Having an Investing Plan and Sticking with it: Why are Goal Setting, Planning, and Implementation Crucial to Your Investing Success? Pitfall 5. Failing to Match Investment Style and Strategy with Personal Goals: Why is Identifying the Proper Investment Strategy So Important to Achieving Your Personal Goals? Pitfall 6. Not Having a Proper Time Horizon: Why Can Thinking Short-Term be Hazardous to Your Long-Term Wealth? Pitfall 7. Taking an Improper Level of Risk: How Can Excessive Conservatism or Risk-Taking Prevent You from Reaching Your Goals? Pitfall 8. Not Balancing Risk and Return: Why is Understanding the Risk-Return Tradeoff an Important Investing Principle? Pitfall 9. Investing Money You Can’t Afford to Risk: When is the Right Time to Begin Investing? Pitfall 10. Not Investing on a Regular Basis: Why Investing on a Regular Basis is a Habit to Cultivate? Pitfall 11. Confusing Past Returns with Future Expectations: Why May Long-Term Averages be of Little Relevance to Your Current Investment Situation? Pitfall 12. Investing in Something that You Don’t Understand: Why Should You Avoid Investing in a Business, Industry, or Security that’s “Above Your Pay Grade”? Pitfall 13. Having Improper Diversification: What are the Implications of Over or Under Diversifying? Pitfall 14. Postponing Opening a Retirement Account: Why Do You Need to Start Saving for Retirement Early? Pitfall 15. Opting Out of an Employer-Sponsored Retirement Plan: Why Should You Take Advantage of an Employer-Sponsored Retirement Plan and Have Your Contributions Automatically Escalated? Pitfall 16. Ignoring Taxes, Fees, and Expenses: Why Should You Focus on Multiple Factors When Making Investment Decisions? Pitfall 17. Ignoring Inflation: Why Are Real Returns More Important than Nominal Returns? Pitfall 18. Failing to Have Enough Indexing: Why Does Indexing Make Sense for Most Individual Investors? Pitfall 19. Not Periodically Reviewing and Rebalancing Your Long-Term Portfolio: Why Should You Not Mechanically Rebalance Your Portfolio in the Short Run? Pitfall 20. Doing Too Little Research: Why is Doing Your Homework Likely to Lead to Better Investing Results? Takeaways

2. Common Stock Pitfalls that Can Lead to Big Losses

Pitfall 1. Failing to Distinguish Between Investing and Gambling: Is Playing the Stock Market the Same as Gambling? Pitfall 2: Confusing a Great Company with a Great Stock: Why is a Great Company Or Product Not Necessarily a Great Investment? Pitfall 3. Forgetting Value: Why Should You Focus on a Stock’s Value, Not its Price? Pitfall 4. Buying Stocks that Appear Cheap: Why Should You Avoid Buying a Stock that Simply Looks Like a Bargain? Pitfall 5. Focusing on Stocks with Low Price/Earnings Ratios: Can Investing in Stocks with High P/E Ratios be a Sound Investment? Pitfall 6. Trying to Pick Stocks: Why is Stock Picking Almost Always a Losing Game? Pitfall 7. Chasing Performance and Yields: Why Should You Avoid Buying Stocks by Looking in the Rearview Mirror? Pitfall 8. Over-Trading: How Can Excessive Trading Eat Away at Your Returns? Pitfall 9. Attempting to Time the Market: Why is Market Timing a Fool’s Game? Pitfall 10. Selling Too Soon: When Should You Consider Selling a Stock? Pitfall 11. Allowing Small Losses to Become Big Ones: Why Should You Cut Your Losses Instead of Waiting to Sell a Stock Until You Get Your Money Back? Pitfall 12. Buying High and Selling Low: What Can Lead You to Violate the Strategy of Buying Low and Selling High? Pitfall 13. Averaging Down to Redeem a Losing Position: Why is Averaging Down a Potentially Risky Investment Strategy? Pitfall 14. Buying Low-Priced (Penny) Stocks: Why Should You Avoid a Love Affair with Cheap Stocks? Pitfall 15. Confusing Brains with a Bull Market: Why Should You Review Your Investing Results in the Context of an Entire Market Cycle? Pitfall 16. Placing Too Much Trust in “Experts” and the Financial Media: Why Should You Tune Out the Noise and Display Healthy Skepticism of the Advice of So-Called Experts? Takeaways

3. Mutual Fund And ETF Pitfalls: What the Industry Won’t Tell You

Pitfall 1. Buying Past Winners: What’s the Danger of Selecting Past Mutual Fund Winners? Pitfall 2. Paying Mutual Fund Loads: What are the Costs of Buying and Selling a Mutual Fund? Pitfall 3. Choosing High Expense Mutual Funds: How Do Fund Expenses Affect Your Return? Pitfall 4. Being Lured into Actively Managed Funds: Why Might You Want to Avoid Actively Managed Funds? Pitfall 5. Ignoring Indexing: Why is Indexing the Way to Go for Most Non-Professional Investors? Pitfall 6. Paying Taxes on Capital Gains Distributions: Why are You Paying Taxes on Mutual Funds You Haven’t Sold? Pitfall 7. Falling for Window Dressing: What Investments Do Funds Really Own? Pitfall 8. Paying for One Level of Risk and Getting Another: Why Do Funds Change Their Risk Level During the Year? Pitfall 9. Investing in Closet Index Funds: Why Should You Avoid Investing in Closet Index Funds? Pitfall 10. Following Mutual Fund Ratings: What Do Mutual Fund Ratings Really Mean? Pitfall 11. Sticking with Bad Funds: Do Bad Mutual Funds Always Have Poor Performance? Pitfall 12. Being Loyal to a Merged Fund: What Happens When Mutual Funds Merge? Pitfall 13. Choosing Closed-End Funds: What Problems are Associated with Closed-End Funds? Pitfall 14. Issues with ETFs: What are the Problems of Owning ETFs? Takeaways

4. Self-Inflicted Pitfalls: The Dangers of Psychological Biases

Pitfall 1. Avoiding Taking a Loss to Reallocate Capital: What is Loss Aversion Bias? Pitfall 2. Letting Regret Affect Good Decision Making: How Does Regretting a Decision Influence Your Investment Choices? Pitfall 3. Controlling Your Instincts: What are Common Self-Control Biases that Can Negatively Affect Your Returns? Pitfall 4. Being Overconfident: Why Can Overconfidence Threaten Your Investment Success? Pitfall 5. Making Mistakes Driven by Stereotypes: How Can Representativeness Bias Influence Your Decisions? Pitfall 6. Being Too Familiar with a Company: How Can Familiarity Bias Affect Your Portfolio’s Riskiness? Pitfall 7. Being Fooled by How Investment Questions are Posed: How Does Framing Influence Your Decisions? Pitfall 8. Trying to Control Things You Can’t: How Can the Illusion of Control Affect Your Investment Success? Pitfall 9. Not Looking for Additional Information: How Can Availability Bias Influence Your Decisions? Pitfall 10. Misremembering Past Performance: How Does Cognitive Dissonance Affect Your Learning? Pitfall 11. Letting Others Affect Your Investments: What Are Social Biases and How Can They Influence You? Pitfall 12. Following the Pack: Why Does Herding Often Lead to Poor Results? Pitfall 13. Having Emotions Influences Your Portfolio: What Emotional Biases are You Likely to Face? Pitfall 14. Skewed Beliefs and Judgments: Why Does Being Optimistic Lead to Taking Unnecessary Risks and Developing Bubbles? Takeaways

5. Investment Schemes Designed to Separate You from Your Money

Fraud/Scam 1. Ponzi Scheme: How Does a Ponzi Scheme Work?

Case Study: The World’s Largest Ponzi Scheme Case Study: Ezubao’s $9 Billion Ponzi Scheme

Fraud/Scam 2. Pyramid Scheme: How Does a Pyramid Scheme Work and Differ from a Ponzi Scheme?

Case Study: The WinCapita Pyramid Scheme

Fraud/Scam 3. Affinity Fraud: What’s Affinity Fraud and Why is it So Insidious?

Case Study: George Theodule’s $30 Million Affinity Fraud

Fraud/Scam 4. Pump and Dump Scheme: How Does a Pump-and-Dump Scheme Work?

Case Study: The AJ Discala $300 Million Pump-and-Dump Scheme

Fraud/Scam 5. Microcap Fraud: What’s Microcap Fraud and Why is it So Prevalent?

Case Study: The VGTel $15 Million Penny Stock Fraud

Fraud/Scam 6. High Yield Investments Fraud: Why Do These Frauds Attract So Many Victims?

Case Study: The ZeekRewards HYIP Fraud

Fraud/Scam 7. Pre-IPO Fraud: How Does a Pre-IPO Fraud Work?

Case Study: The JSG Capital Investments $10 Million Pre-IPO Fraud

Takeaways

6. Other Frauds and Scams that Lure Unsuspecting Investors

Fraud/Scam 1. Foreign Currency Trading Fraud: How Can You Identify Potential Foreign Currency Trading Fraud?

Case Study: The Exential $200 Million Currency Market Fraud

Fraud/Scam 2: Binary Options Fraud: What are Binary Options and How Can Binary Options Websites Be Used for Fraudulent Schemes?

Case Study: Jared Davis: A Binary Options Conman Who Swindled Investors Out of $10 Million

Fraud/Scam 3: Cryptocurrency Scams: Why are Cryptocurrency Scams So Attractive to Investors?

Case Study: The BitConnect $2 Billion Fraud

Fraud/Scam 4: Online Platform Fraud: How Does Online Platform Fraud Work?

Case Study: The Quianbao $11 Billion Online Platform Fraud

Fraud/Scam 5. Precious Metal Frauds: What Forms Do Precious Metal Frauds Take?

Case Study: The Northwest Territorial Mint $25 Million Precious Metal Ponzi Scheme

Fraud/Scam 6: Prime Bank Fraud: What’s a Typical Prime Bank Fraud?

Case Study: The Dutch Billionaire and a €100 Million Prime Bank Fraud

Fraud/Scam 7: Promissory Note Fraud: What’s a Promissory Note and How Can Such Notes Be Used to Swindle Investors?

Case Study: The Success Trade Securities $14 Million Promissory Note Fraud Involving Former NBA and NFL Players

Takeaways

Index

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