Nothing protects your money quite as well as a healthy dose of skepticism.
With the stock market having rebounded enough to make investors feel lucky, and with charities surfacing daily to capture year-end tax deductions, consumers need to have their radar operating on full power.
It’s not hard. Simply take a cold look at the things that should set you on edge. Then memorize the list.
It should be easy, but it isn’t.
Last week provided some proof.
A recent segment on the Nightly Business Report television show touted a stock called Intasys, which carries the ticker symbol INTAF. Unfortunately, the segment gave out the wrong ticker symbol, dropping the A.
As if that was not confusing enough, both Intasys and Interface Systems (the company that really has the INTF ticker) both do the same kind of work, designing business billing software.
You would think people know well enough to avoid hot stock tips and to check out a company’s fundamentals before buying, but they don’t.
In the day after the Nightly Business Report broadcast, the wrong stock–Interface Systems–more than doubled in price, setting its 52-week high on volume that was more than 150 times the average day.
By the middle of the day Monday, message boards were burning with news that people were buying the wrong stock. Interface issued a press release noting the mistake.
But the fact remains that some segment of the population bought the stock entirely based on a ticker symbol they saw during a television broadcast. Had they done even the slightest shred of research, these same people would have realized that something was amiss. (Intasys, by the way, does not appear to have been affected by the broadcast, even though it was the touted stock.)
Unless you are some type of day trader looking for an edge, you might assume this can’t happen to you.
But to protect yourself, you should assume it can.
Whether you have been given a hot stock tip or have been approached about some easy-to-win contest, put the brakes on the process and ask, “What’s wrong with this picture?”
Recently, at the Society of American Business Editors & Writers Conference on Personal Finance, one key regulator gave a good look at how to do this.
Mary Schapiro, president of NASD Regulation Inc.–the arm of the National Association of Securities Dealers that tries to crack down on brokerage and investment scams–talked about how her agency tries to police the Internet.
One key technique boils down to looking for specific terms that raise red flags.
Neither Schapiro nor other NASD officials will divulge the specific list of words–that would only serve to arm the bad guys–but it doesn’t take a genius to figure out what kinds of things might make the list.
With that in mind, here are a few words and phrases that should get you nervous about investing, spending or donating your money. Use this list as a starting point, adding to it those terms that put you on edge.
You should get nervous when you hear the following:
– “The next Microsoft.” This sales pitch almost never changes. Two decades ago, stocks were touted as the “next IBM.” But no matter the role model, there is no merit to comparing some new start-up company just out of the offering period with an established giant.
Every company is unique and should be judged on its own merits and how well it fits into your portfolio.
Keep in mind that these pitches may come from completely legitimate sources. A lot of brokers believed Boston Chicken was “the next McDonald’s.” Today, it is seeking protection from creditors in Bankruptcy Court.
Use this same radar to spot any type of hot stock tip, especially anything that promises to “double (or triple) your money.” If you are an ordinary investor/consumer–and you are–chances are you will never be privy to the kind of information that truly allows you to benefit from someone’s tip.
– “Guaranteed.” Possibly the most misused word in the consumer lexicon, a guarantee is only as good as the paper it is written on and the firm standing behind it.
Countless investors have been guaranteed their stocks would continue to appreciate. And every day consumers buy products that come with some form of guarantee.
If a guarantee plays a role in your decision-making process–especially if it’s a money-back promise–make sure you understand upfront how it works.
Bank of America, for instance, once guaranteed that customers would be happy with the service on their checking account. To invoke the guarantee, however, a customer had to close the account and leave the bank. That’s a guarantee that you can get some money back once you have gotten really upset; it does not factor one whit into your satisfaction with the account on an on-going basis.
– This price “after rebate.” Rebate pricing is a popular sales tool, because it allows the seller to show the lowest amount the consumer will pay. But not all rebates are created equal; you could wind up expecting to get back your entire purchase price only to find out that the rebate is valid only on alternate Tuesdays when the moon is full and the form is filled out by a redhead.
If a rebate or coupon price brings you to the store, make sure you can get the discount before you make the purchase.
– “Yours at no obligation.” What makes you so lucky? Perhaps it is whatever you are expected to buy, or whatever the company plans to bill you for once they give you some little trinket.
Before you accept one of these freebies, find out what the provider wants you to be obligated to. That’s what you will have to wriggle out of if you take the object and are not satisfied.
– “Batteries not included.” This holiday-season favorite is just one of those phrases that needs to be checked out before you buy. It’s not that batteries are so expensive; it’s more that you need to see everything involved–or left out–before you make your purchase.
– “You are a winner!” It’s not that you are a loser and should get down on yourself, it’s that contests don’t just go out and pluck winners without some catch.
If you have to pay something or buy a magazine subscription or do anything other than fill out a form or turn in a winning ticket, you aren’t a winner.
The main thing to remember, in these (or any) situations that puts you on edge, is this: Anything that sounds too good to be true, probably is.
