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

by Kenneth L. Fisher, Lara Hoffmans

A timely guide to uncovering financial fraud 2008 and 2009 will be remembered for bear markets, a global credit crunch, and some of the largest investment scams ever. But these scams are nothing new, they've been repeated throughout history, and there will certainly be more to come. But the good news is fraudsters often follow the same basic playbook. Learn the playbook, and know how to ask the right questions, and financial fraud can be easy to detect and simple to avoid. In How to Smell a Rat, trusted financial expert Ken Fisher provides you with an inside's view on how to spot financial disasters before you become a part of them. Filled with in-depth insights and practical advice, this reliable resource takes an engaging look at recent and historic examples of fraudsters, how they operated, and how they can be easily avoided. Fisher also shows you the quick, identifiable features of financial frauds and arms you with the questions to ask when assessing a money manager. With How to Smell a Rat as your guide, you'll learn how to protect your interests and assets from unnecessary losses.

Genres: Finance, Business, Economics, Nonfiction, Audiobook

224 pages, Hardcover

First published January 1, 2009

Reviews

[Chele Hipp · Rating 5 out of 5]

Blinkist. Excellent advice for people who are starting out in the investment world and needing to think about finding an investment advisor.

[Archit · Rating 2 out of 5]

1. Badly written book. The only meaty aspects of it were the recommended reading sections.

2. Glancing at the title, one would assume that the author would walk us through the financial statements or at least provide some hints along the way as he chronicles the fraud. Not only does he not do that but also he does not explain the fraud in detail. The frauds/ scams mentioned in the book are just bits and pieces; ideal for a person interested in just surface-level information.

3. One would be better-off reading:


4. 5 signs of financial fraud
#1 - Your adviser also has custody of assets
#2 - Returns are consistently great; too good to be true
#3 - The investing strategy isn't understandable - its murky, flashy
#4 - your advise promotes benefits of exclusivity that don't impact results
#5 - you didn't do your own diligence, but a trusted intermediary did

5. Recommended books by the author
A. Chapter 1
• Ponzi ’ s Scheme: The True Story of a Financial Legend by Mitchell Zuckoff
• Ponzi: The Incredible True Story of the King of Financial Cons byDonald Dunn
• Vesco: From Wall Street to Castro ’ s Cuba The Rise, Fall, and Exile of the King of White Collar Crime by Arthur Herzog
• The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals by Frank Partnoy
• Kreuger ’ s Billion Dollar Bubble by Earl Sparling (1932).
• The Pretender: How Martin Frankel Fooled the Financial World and Led the Feds on One of the Most Publicized Manhunts in History by Ellen Pollock
• The Founding Finaglers by Nathan Miller.
• Once in Golconda: A True Drama of Wall Street 1920 – 1938 by John Brooks
• The Big Con: The Story of the Confi dence Man , David Maurer
• The Embezzler , Louis Auchincloss (1966).
• 100 Minds That Made the Market by yours truly.
B. Chapter 2
• Investment Performance Measurement by Bruce J. Feibel
• How to Lie with Statistics by Darrell Huff
• 100 Years of Wall Street by Charles R. Geisst.
• The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons from Financial Cycles and Trends by Ken Fisher
• The Big Board: A History of the New York Stock Market by Robert Sobel
• The Global Securities Market: A History by Ranald Michie
• A History of the Global Stock Market: From Ancient Rome to Silicon Valley by B. Mark Smith
C. Chapter 3
• Getting Started in Options by Michael C. Thomsett (Wiley 2007).
• Option Volatility & Pricing by Sheldon Natenberg
• The Only Three Questions That Count by Ken Fisher (Wiley 2006).
• Securities Analysis by Benjamin Graham
• The Intelligent Investor by Benjamin Graham (1949).
• Developing an Investment Philosophy by Philip A. Fisher
• Common Stocks and Uncommon Profi ts by Philip A. Fisher
• Own the World by Aaron Anderson
D. Chapter 4
• The Art of the Steal: How to Protect Yourself and Your Business from Fraud, America ’ s #1 Crime by Frank Abagnale
• How to Become a Professional Con Artist by Dennis M. Marlock
• Players: Con Men, Hustlers, Gamblers, and Scam Artists by Geno Zanetti.
• How to Cheat at Everything: A Con Man Reveals the Secrets of the Esoteric Trade of Cheating, Scams, and Hustles by Simon Lovell
• Crimes of Persuasion: Schemes, Scams, Frauds by Les Henderson
E. Chapter 5
• Abuse on Wall Street: Conflicts of Interest in the Securities Markets by the Twentieth Century Fund Steering Committee on Conflicts of Interest in the Securities Markets
• The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance by Joel Seligman
F. Chapter 6
• Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay
• Markets, Mobs & Mayhem : How to Profi t from the Madness of Crowds by Robert Menschel.
• Mania, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger
• Monetary History of the United States 1867 – 1960 by Milton Friedman and Anna Schwartz.
• Capitalism and Freedom by Milton Friedman
• Reminiscences of a Stock Operator by Edwin Lefevre
• The Way the World Works by Jude Wanniski

[TC · Rating 2 out of 5]

This book reads like it was dictated on rides to the office, and edited during waits at the airport. The style is conversational with lots of half-sentences ending in exclamation points. It repeats itself repeatedly, stating the same thing paragraph after paragraph, sometimes with a break in-between while a previous idea is re-stated, providing for even more repetition and disjointedness. Along the way he’ll remind you constantly he runs his own financial services firm “the right way,” and that he’s authored numerous other books, which he will quote from and refer to incessantly. He certainly knows how to self-promote.

But how is the advice on "how to smell a [financial] rat?” Solid, and ultimately correct. The author lays out five rules to scoping out a money manager that will lessen the likelihood that one is buying into a Ponzi. Despite this clearly being a book aimed at novices, even semi-sophisticated investors would probably do well to read this and mentally reinforce these rules, despite them being more-or-less common sense.

Just be prepared to wade through a lot of unnecessary verbiage that could have been reduced to a series of blog posts or a three-page magazine article.

[Viktor Nilsson · Rating 3 out of 5]

I appreciated this as an audio book (listening while doing other things), but I doubt I would appreciate it as a pure read, because it seemed very repetitive. But still, it is informative, sometimes both funny and exiting, an easy read, and contains very sound advice. I recommend it for anyone who'd consider to have anyone else manage their investments.

[Jung · Rating 4 out of 5]

I must have enjoyed it because I finished it within a week. Only the first point was useful for me although I am not sure how practical it is in New Zealand. All have separate custodian companies but I suspect they can all have access to customer assets if they wanted. The appendix was the most interesting part.

[Julian Bu · Rating 3 out of 5]

Solid common sense advice.

[Paiman Chen · Rating 4 out of 5]

A very good reminder.

[Brad · Rating 4 out of 5]

Quick easy valuable.

[E · Rating 5 out of 5]

Savvy guide to avoiding con artists

The unlamented year of 2008 was a terrible time for investors. The news that money wizard Bernie Madoff stole some $65 billion from his investment clients with a giant pyramid scheme added insult to injury. Though already in his 70s, Madoff received a 150-year prison sentence for his thievery. Many felt the punishment was too light. The world is full of crooks and charlatans like Madoff. Fortunately for investors, they often give themselves away if you know how to spot them. In this savvy manual, business journalist Ken Fisher (writing with investment expert Lara Hoffmans) details five warning signs that can reveal crooks posing as financial advisers. getAbstract recommends this book to investors who are suspicious and to those who ought to be.

[C · Rating 5 out of 5]

A simple, straight-forward primer on how to spot financial shucksters. The 5 signs your adviser might be or could evolve into a rat were helpful:
1) they have custody of your assets
2) returns are consistently great
3) their investing strategy is gobbly-gook
4) they promote benefits like exclusivity which don't impact results
5) You didn't do your own due dilligence

What I found even better was the clear explanations of asset allocation, stock market trends, avoiding accounting fraud, and the profiles of Minds that Made the Market in the appendix. Entertaining and enlightening.

[Kristin-Leigh]

I'm not so much interested in investment banking as fraud, but this book was interesting anyway. It's really obvious that Fisher is a magazine columnist first, author second, because the book was subdivided into small sections and repeated itself regularly the way listicle writers seem to. Most of these lessons were ones anyone could learn watching an episode of Leverage (♥), though, so I'd recommend two or three other books on fraud/theft/counterfeiting before this one.

[Mardel Fehrenbach · Rating 3 out of 5]

I was given this book and felt obligated to read it. It is a very fast read, and the five signs of financial fraud that Fisher offers seem sound and the advice is useful. However the gist of the book was contained in the introduction; the remainder consisted merely of illustrations of the main points. These chapters might prove useful, especially to novice investors.

[Donald · Rating 3 out of 5]

A book with good information, but a book with good information THREE TIMES! At the end of each chapter, there is a "chapter recap," which, of course, says everything the chapter just did, but in fewer words. Then, at the end of the book, there's an entire "book recap" chapter, which repeats everything the book just said! Could have been a pamphlet . . .

[Jay · Rating 4 out of 5]

Not a bad book on how to spot a fraudster. There are six critical things a investor should focus on before making a decision as to whether to give money to an adviser. Good advice and not a difficult read.

[Kathy Robbins · Rating 4 out of 5]

Very good read for anyone who is going to invest any money anywhere!

[Ann Major · Rating 3 out of 5]

I feel this book was helpful to me, but it was not earth-shattering. Still, it gave me some advice I followed.

[Balhau · Rating 3 out of 5]

This is an interesting book with a very usefull advices. I write a more detailed description of it here http://codecorner.balhau.net/2015/09/...

[Ryan · Rating 3 out of 5]

Very Informative but repetitive. I would actually give it 5 stars on the advice, but as far as pleasurable reading it's average.

[Rusty Fulling]

Feb-2010 Interesting book identifying areas of concern with working with money managers. Good insight to Bernie Madoff's downfall.