Sunday, August 30, 2009

How To Smell A Rat

At first this latest book by Ken Fisher with Laura Hoffmans seemed simple until you remember that most investors do not follow these rules. Kudo's to Ken Fisher for reminding us all. The five signs of financial fraud according to Ken Fisher are:

1. Separate decision maker and custodian.
2. Too good to be true usually is.
3. Don't be fooled by flashy tactics.
4. Ignore exclusivity, marble and other things that don't count.
5. Don't let anyone in between you and the decision maker.

The book is readable and quickly teaches important lessons that investors should be mindful of. Each chapter also includes an additional list of books and readings that most students of the market will find useful. Of course if you are not a student of the market you probably will not read this book.

Ken Fisher includes an interesting commentary about politics on page 97 under political pandering. The snippet is "If we look at the history of professional investors, there is no evidence that Democrats or Republicans or folks of no persuasion do any better--none."

Therefore should investing be politically agnostic?

Particularly interesting are the comments about the SEC on page 121 under "True Crime" essentially law enforcement is good at capturing stupid criminals. The smarter they are the harder it is to catch. White collar crime and securities fraud seem to be the best paying and the SEC is woefully under resourced.

Caveat Emptor.