Money Talk is Polite Conversation

By G. Kevin Mathis, Investor Advocacy Intern, Spring 2019

The rattlesnake king, Clark Stanley, created the narrative of the snake oil salesman.  Stanley peddled his snake oil liniment to consumers at the 1893 Chicago World’s Fair. To gain credibility for his product he performed a show-stopping act for fairgoers. He snatched a rattlesnake out of a bag sliced the snake open and squeezed out what he claimed to be healing snake oil extracts. The fairgoers bit and bought Stanley’s snake oil liniment. Thankfully, the Food and Drug Administration (FDA), then known as the Division of Chemistry, also purchased some of the liniment. The FDA tested the liniment and found out that it was not snake oil, but a mixture of dangerous chemicals that could potentially injure consumers.

Beyond being the story that created the tale of the snake oil salesperson, Stanley’s story is the story of someone defrauding buyers.  These stories have several common elements that consumers can use to protect themselves. The aspect most prominent in Stanley’s snake oil scheme is that fraudsters tend to create a product that emulates a real product so that their claims about their product has some basis in truth. Real snake oil made from the oil of the Chinese water snake, which is rich in the omega-3 acids that help reduce inflammation, was quite useful. Stanley’s snake oil was a fake version of Chinese water snake oil that he claimed was real. He also inflated the benefits of his product compared to the real one. Understanding and identifying these commonalities can help protect consumers when the next rattlesnake king comes rolling into town.

How does knowing what Stanley’s story help investors? Investors are consumers that buy securities. Knowing stories of products with incredible claims can help investors build some healthy skepticism when it comes to the claims of financial professionals. That skepticism can cause investors to pause and question a financial professional. When their claims about a product exceed what is typical of that product or do not line up with the product that they claim it is investors should alert others. When investors communicate about bad investment products investment advisors hoping to defraud unwitting investors have little or no unsuspecting investors available to defraud.

I am discussing some other schemes and their essential elements so that consumers can build up some knowledge of what to look for when it comes to spotting bad investments. As investors learn these elements, they should remember that communicating with other investors is the most important thing investors can do to protect themselves. When it comes to bad investments is to talk about their investment experience the good, the bad, and the ugly. Continue reading