Steve Braun

Mar. 9, 2006 - Think Before You Leap

Today's Wall Street Journal has a front-page story that underscores the need to think critically before acting foolishly. It's better to play the skeptic and cast a critical eye on others' investment claims or promises than lose your money.

The specifics of this story are an investor's nightmare come true -- as much as $185 million has vanished along with International Investment Associates founder Kirk S. Wright. This money was collected from doctors, business owners, NFL football players, and other prominent individuals over the past 6 years with the lure of high investment returns, reportedly as high as 27% annually!. (See Southern Discomfort - Troubles at Atlanta Hedge Fund Snare Doctors, Football Players by Ian McDonald and Valerie Bauerlein.)

I found the following passage eerily similar to the points I made about evaluating "too good to be true" claims:

"The rise and fall of Mr. Wright and his firm highlights the risks run by hedge-fund investors who take reports of high returns by little-known managers at face value. In hindsight, there were many red flags at International Management: unusually consistent high returns, vague descriptions of investment strategies, aggressive marketing, no auditing, and secretive behavior by the manager." [emphasis added]

Of course there is a big difference between spending a few grand on suspicious seminars and investing your life savings with a crook. What's interesting, however, is that in both cases the same "too good to be true" claims are employed -- the former to attract an audience to buy questionable materials and the latter to attract investment clients to steal their money.

My purpose with the "too good to be true" post was to help people go through the process of evaluating such claims before buying into yet another system for getting rich. As I wrote:

"How can you know if these investing techniques are worth your time and money? How can you discern between the helpers and the hustlers? Is there a way to evaluate their claims before plunking down lots of money to learn or subscribe? Can you spot red flags that may warn of potential trouble on the horizon?"

I then went on to evaluate one example based on readily available information and concluded there were too many red flags.

Had the individuals in the WSJ story asked many of the same questions and done their due diligence thoroughly, they might be $185 million richer today. But what does a skeptic like me know anyway?

Rich or poor. Educated or not. Prominent or average. When it comes to your money, you must always be on your guard.

As the saying goes, "If it's too good to be true, it probably is."