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Keep Your Eye On The Yellow Light

Oct 10, 2007
I think I was 30 before I figured out the yellow traffic light didn't mean I was supposed to mash my foot on the gas peddle because the light was turning red. As I got older and wiser, I didn't need to go as fast as I did when I was young and somehow I found stopping safely to be more valuable than beating the light.

Online investors can use some of that wisdom as they go about the business of putting their life savings into investments hoping to make even more money for their future. For every legitimate broker and stock out there, the number of fraudulent incidences triples. Anytime you are involved in online trading, keep your eyes open for these yellow lights.

Bad Information

Stock tips are everywhere. Internet sites, blogs, papers, dentists, and friends - they all have something to say about stocks. The problem comes in knowing the difference between a good tip and a lie designed to misdirect your investing strategies. There is a myth that Rockefellers dumped their stock right before the crash of 1929 because Mr. Rockefeller got a stock tip from a shoe shine boy that was so obviously incorrect he became worried about the stability of the whole market.

True or not, it points out a viable concern. Bad information about stocks can harm the economy at the personal and holistic level. A common fraud scheme is called "pump and dump" where fraudulent information about stocks is broadcasted all over the internet to make a stock appear hot. Once people jump into it the initial upswing makes it look like a good deal and more people invest until the information turns out to be false and the stock price falls dramatically. Be wary of anyone or website giving you fast breaking tips without research.

Fake IPO's

Initial Public Offerings, called IPO's , are given as soon as a stock becomes public for the first time. The attraction is that you can get in at the "bottom floor" of a stock and ride it to the top. Because of the nature of an IPO (frequently companies that are new or unheard-of) it is easy for scam artists to run a con pretending to offer you an IPO on a new company that really doesn't exist or isn't going public in the first place.

The con scheme costs people millions of dollars a year in lost investment capitol. By the time you realize there is no company, the person who has your money is as invisible as the offering you thought you were getting. Every company, even a new one, has some history and licensing. Check out an IPO very carefully and remember if they are pushing you to move too fast for safety, then its time to stop.

Corporate Lies

The Securities and Exchange commission does everything in their power to keep corporations from giving out false information. As Enron has shown us, though, some lies are so big that even the people telling them may begin to believe they are true. The best way to defend against a company saying they are doing much better than they actually are is to balance your portfolio with stable stocks and bonds. Instead of investing everything you have in any one company, put your money in several places so that if there is a case of corporate fraud you won't lose everything.

Online trading can be an adventurous ride. If you keep your eyes peeled for the warning signs, your investment future can be as green as go.
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