How to Smell a Rat : The Five Signs of Financial Fraud

How to Smell a Rat: The Five Signs of Financial Fraud

By Ken Fisher

With the recent financial fraud led by Bernard Madoff, many investors are unsure who to trust with their hard earned money.

In "How to Smell a Rat : The Five Signs of Financial Fraud" the latest book from Ken Fisher, CEO of Fisher Investments, provides you with an insider's view on how to spot potential financial disasters before you commit your money to a scam and protects you against similar frauds in the future. Using real examples of recent and historic fraudsters, this book examines how they operated and how investors could have avoided them. Ken Fisher identifies important red flags and questions that can be used by investors when evaluating money managers:

Advisers with direct access to investors' funds;
Firms with numbers that seem too good to be true;
Managers with fees that are too low (Madoff didn't charge any fees, he just charged for trading);

You'll be better prepared to identify and avoid financial scams that could destroy the wealth you've worked so hard to build.

The main chapters of the book are

Chapter 1 : Good Fences Makes Good neighbours

Chapter 2: Too Good to be True Usually Is

Chapter 3: Don't be Blinded by Flashy Tactics
Chapter 4: Exclusivity, Marble and Other Things That don't Matter
Chapter 5: Due Diligence is Your Job, No One Else's
Chapter 6: A Financial Fraud - Free Future

Holiday

Holiday during last four months

We have been occupied by other matters and events during last four months and we regret for no publishing any posts in this blog. There were a lot of changes during this period especially for investors. Most of the investors were happy about the bullish of the shares markets as well as commodities markets.

We wish to share our happiness of the marriage of our daughter. The following are some of the photos that have been taken during her wedding.

Ten Rules to remember for share investors

Robert Bab Farrell, former Merrill Lynch chief market strategist, has fifty years of top Wall Street experience and insights, summaries the markets in ten commonsense simple rules for us to remember when investing.

1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras - excesses are never permanent.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue chips names.
8. Bear markets have three stages - sharp down; reflexive rebound; a drawn-out fundamental downtrend.
9. When all the experts and forecasts agree - something else is going to happen.
10. Bull markets are more fun than bear markets.

The End of Food by Paul Roberts

In the book, Roberts says one of the main roots of the wider food crisis is the way a unified farming process was broken down into discrete components so that they could each be industrialised, from the development and production of seeds and the mechanisation of planting and harvesting through to factory-scale food processing.
These changes have lead to a system where each individual step in the process takes no account of the wider costs imposed on the rest of society.
In addition, there is an ongoing concern about climate change. Not only does this system generate enormous greenhouse gas emissions. It is also dependant on huge quantities of water, something that is to become less secure as existing water sources are used up.
Roberts says, for example 'bird flu' is one of a number of bullets that could strike the modern food system . He also lists oil price rise, extreme weather, plant diseases and the loss of water supplies as other potential disasters awaiting us in this global Russian Roulette.
The title of this book - The end of food - means the collapse of this industrialised food system. It is this pessimism that runs to the heart of the book.

Jeremy Siegel and his investment books

Jeremy Siegel, a Professor of Finance at the Wharton School of the University of Pennsylvania has written a number of books on investment. The following two books are his research works on stocks.

Stocks for the Long Run (4Th edition): The definitive guide to financial market returns and long term investment strategies

This book is the best summary of the historical data on investing in US (with some comparison to other financial markets as well). The main topics are:
1. The Verdict of History;
2. Stocks Returns;
3. Economic Environment of Investing;
4. Stock Fluctuations in the Short Run;
5. Building Wealth Through Stocks.

Another book is

The Future for Investors: Why the tried and the true triumph over the bold and the new

This book cover five parts:
First two parts focus on analysis of historic data using very unique perspective, mostly with respect to changing membership of SP500 index over the years.
In the Third and Fourth parts, he discusses the different measures to consider while analysing a company's performance from the shareholders' points of view.
The Fifth part is the most useful for reader seeking investment advice. He provides a sample portfolio based on the principles he explains in the Third and Fourth parts of the book. In addition to percentage allocation for US and non-US(about 30-40%) markets, he provides allocation targets for some of the specific investment strategies he discusses in the book (centred around the dividend paid by the company).

The New Paradigm for Financial Markets

The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means

This is a book written by George Soros. It was published in May 2008 before the severe financial crisis in Sept 2009. So George Soros became a successful prophet of the markets.

In his book, he offers some solutions, which centre on new regulation for markets and how to avoid forced sales for US homeowners. The theory he developed is based on 'the relationship between thinking and reality' - "Reflexivity". He says, participants' thinking plays a dual function: they try to understand the situation, and to change it. The two functions can interfere with each other, when they do so the markets displays 'reflexivity'.

Soros believes that a super bubble has been formed as the result of a "long-term reflexive process". Its hallmarks include credit expansion and a prevailing misconception. There have been numerous financial crisis in this period, and these served as successful tests which reinforced the prevailing trend and the prevailing misconception. Thus the current crisis grows in severity because it marks the turning point when both the trend and the misconception have become unsustainable.

Kristabel in Singapore