Know How to Spot a Scam Artist

Video Transcript

Kelly Kesner: I’m Kelly Kesner with Investor’s Watchdog University. I’m here with Pat Huddleston, who’s the founder of Investor’s Watchdog, and here we’re going to talk about a really intesting topic, which is how to spot a scam artist on site.
Pat Huddleston: Yeah. And everybody likes to think that they’re able to. But, I love this topic, Kelly, because it allows me to tell one of my favorite stories. And we go all the way back to Depression era Mississippi to get an answer to our question, how do you spot a scam artist on site. So, a fellow named Homer Edgeworth was the chief teller of the Citizens State Bank of Tupelo, Mississippi back in 1932.
He woke up on the morning of November 30th and thought it was just going to be another Wednesday in the office. He goes in to work. That day George “Machine Gun” Kelly robbed the bank of $38,000.00 and afterwards when they asked Mr. Edgeworth, “What did he look like?” He said, “He was the kind of guy that if you looked at him you never would have thought he was a bank robber.” And so the same advice is true about spotting a Ponzi scamster by sight. You just can’t do it.
Kelly Kesner: And the stereotype doesn’t hold true. They’re usually just like anybody else you would see in a brokerage firm. They’re dressed nicely. They look professional, but they’re really not there in your best interest.
Pat Huddleston: That’s right. They’re not shifty-eyed. They don’t have limp handshakes. They understand how much is involved in the presentation because that presentation sets up biases in your mind that work in their favor and so they’re going to take every chance they can. Sometimes I just tell people, “Look in the mirror if you wanna know.”
Kelly Kesner: You’ve been in the midst of looking for this for over 20 years. Do you have any tips to tell people because you say, “Just look in the mirror,” what is going to help them look behind that?
Pat Huddleston: Perfect. Yeah, great question. The way that you can get an intuition about this, the way that you can become marginally better at doing it is first of all, remember that story I told you about Homer because it’ll keep you humble. But, if you really want to get a sixth sense for this, you really have to become a student of investment fraud. That means reading blogs like Investor’s Watch or reading books like The Vigilant Investor, which tells more than 40 stories of investment fraud. Read every book on scams that you can get your hands on because what happens – and this is fascinating, Kelly. This is how the brain works. Those stories will go down into a part of your brain that you wouldn’t be able to access very quickly. But, if you’re looking at an investment five years from now, you might get a bad feeling about it and you might realize later that that bad feeling goes all the way back to the fact that this sounds an awful lot like a scam you read about on a blog five years ago. Now, what happens if you haven’t read blogs or read books about scams?
Kelly Kesner: You don’t have that warning then.
Pat Huddleston: Exactly. You don’t get that bad feeling. That’s where those sorts of bad feelings where there’s something not right about that, that’s where they come from.
Kelly Kesner: And I would guess that even if you haven’t read about that particular scam there would be some elements to the scam that would give your brain the same warning down in the future. So, as long as you’re studying and learning you’re developing some of those skills.
Pat Huddleston: That’s exactly right. And even if you’re not learning specifically about investment fraud, if you can learn a little bit about how your brain works. There’s a great book that I recommend to you. It’s called How We Decide by Johnna Lair and it’s about the neuroscience of decision making, about how the “emotional brain”, so to speak, is absolutely essential to effective decision making and it really speaks to how powerful your brain is, much more powerful than you think it is, and how it can protect you through the sort of process that I described.
Kelly Kesner: Well, thanks for the recommendation. I suggest everyone check it out and that’s all we have time for today, but we’ll get to more in upcoming classes. Thank you and class dismissed.
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