The article looks at a fascinating example from the early 19th century in London where investors were conned into investors in bonds for a fictitious Central American settlement Poyais. Well worth a read if you are interested in
The practical element from the article that caught my eye looked at why people fall for fraud. It refers to research out of Boston University by Tamar Frankel based on the study of hundreds of financial cons. The research suggests that the following are recurring traits of victims:
- Excessively trusting
- Have a high risk tolerance
- Have a need to feel exclusive or part of a special group
The article also refers to other research suggests that victims tend to:
- Harbour dissatisfaction with their current economic status
- Desire not to be left behind
- Feel envious of economic neighbours
This all leads to greedy or risk investing.
Many of us shake our heads when we hear of others being trapped by financial fraudsters and ask how could someone fall for the outrageous claims they make. Reading the list of characteristics might lead many of us to rethink our perceived safety from financial fraud. We could easily fit into the class of potential victim.
So what's the investment lesson?
A key to avoiding making the same mistakes as financial fraud victims of the past it is really important to carefully question any investment that you get into. Look for total transparency and not a black box where you really don't understand what you are investing in and finally seek trusted professional advice before jumping in.