Steaks and Stocks: Why your next barbeque may be a recipe for unsafe investing
It’s been a busy summer and with hot weather comes barbeques with good friends, great food, and interesting conversation. When I go to these parties, eventually the conversation around the grill turns to the stock market and investments in general. Everyone is interested in the next big thing. I’m sure you’ve heard the stories about the “friend of a friend of a friend who has made a lot of money.” And hey, if you can’t trust a stock tip from a friend, who can you trust?
Well there are a few questions to ask yourself before you make the call to your broker to buy on Monday morning. First of all, do you know if this tip is coming from someone who works at or has special “insider” knowledge of the company you’re talking about? If so, acting on the tip may be considered illegal insider trading and you and your friend could face prosecution. If you’ve ruled that out, then the next question would be, do you know if your friend did their homework about the investment before they jumped in? As well intentioned as they may be, there is no guarantee that your friend or you aren’t walking into something that could be very risky and possibly an investment scam.
Unfortunately, when it comes to investment fraud, fraudsters frequently rely upon investors spreading the word to new investors – often friends and family -- in the hopes of bringing in even more money. Earlier investors are paid out and used as bait and they may not even know it. Even though you trust your friends and relatives, some of them may be unknowingly baiting an investment trap with you as the victim.
Every day I speak with many investors who feel badly because they not only lost their own money in high risk or shady investments, but they also urged friends and relatives to invest in the same deal. I also receive calls from investors whose “ex-friend” gave them a tip and they lost everything.
The next time you get a tip for an investment, conduct your own research – don’t rely on your buddy’s word. If you don’t find enough information available, ask the friend that gave you the tip for more information on the company. It’s always possible that the tip turns out to be legitimate, but if you still feel uncomfortable with the investment then simply walk away from it.
Nothing comes between you and your friends and relatives like money. Make sure to ask the right questions so you keep both.