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Take advantage of investing without being taken

Published Oct. 1, 2005

The stock market, as represented by the Dow Jones Industrial Average, rose almost 28 percent in 1996, breaking through the 6,500 level. New stock offerings are sold out almost within hours of their availability or are oversubscribed. Mutual fund sales continue to soar, with total assets at record levels.

All these factors combined create an ideal climate for unscrupulous investment sales representatives to prey upon unsuspecting investors, who may be persuaded that making money in the stock market is easier than ever.

In fact, at these historically high levels, just the opposite is true.

The best advice for prudent investors is to be on the alert for sales pitches that sound too good to be true, because almost invariably they are just that. The best way to eliminate investment problems is to avoid them; here are 10 suggestions that should prove helpful.

1. Never, never, never make any investment based on a telephone call from a person or company you do not know. Don't be influenced by titles such as investment banker, financial consultant, account executive, since in almost every case you are talking to a salesman.

2. When unfamiliar sales people introduce themselves to you, ask for the names and phone numbers of three clients/customers who have done business with them for at least two years. Then call each of them and ask about their investment experience. Do this before you give any consideration to what they may have proposed.

3. If you decide to invest, about three to five days after you make the investment ask the sales representative to provide for you in writing, on company letterhead, the value of the investment should you decide to sell it at that time. If you are told this is not possible, ask for the manager and request a full refund of your investment. If the investment is part of an underwriting of a new offering, then you will have to wait until the underwriting is closed.

4. Don't make any investment based primarily on an assertion that it will help you reduce/avoid taxes. Instead, look at the underlying reason(s) the investment is a sound business enterprise with good prospects for the future.

5. Ask the sales representative how he/she is being paid and how much. Get a specific answer and ask for it in writing in the form of a prospectus with the appropriate page(s) identified, or on company letterhead.

6. Do not give a stockbroker discretion to make purchases or sales in your account. Insist that all transactions be made only with your prior, expressed approval.

7. Don't ever make an investment decision because of an impending deadline. If you are not given adequate written information and sufficient time to study the information, then pass. Good investments are not dependent on calendar schedules.

8. While there are many reputable people and companies conducting their business primarily by telephone, be particularly alert to sales representatives who call "following up on a call" they claim was made several months ago. Unless you clearly remember the call and the caller, don't waste time; just hang up.

9. Be particularly wary of "free" seminars or luncheons where a hard pitch will be made to convince you to purchase cassette tapes or investment courses of dubious value, which could cost upward of several hundred dollars.

10. If you are inclined to do business with an investment representative you have not previously met in person, be sure to ask if he or his firm have had any disciplinary problems with the Florida Division of Securities, the National Association of Securities Dealers Inc. or the Securities and Exchange Commission. Then confirm what you have been told in the way described below.

If you do encounter a problem or wish to check on an investment person or firm's disciplinary history, you should:

Write to the Bureau of Registration, Division of Securities and Investor Protection, Department of Banking and Finance, The Capitol, Tallahassee, FL 32399-0530 (or fax your written request to (904) 681-2428).

Call the National Association of Securities Dealers (NASD), Central Registration Depository (CRD), on their CRD hotline, during regular business. Have available the name of the investment representative, the company and the city in which they are located.

These are free services that are available to you for your protection and should be used before an investment decision is made.

In a similar vein, are you deluged with a flood of direct mail solicitations? To get your name removed from most mailing lists, send your written request to: Mail Preference Service, Direct Mail Association, P.O. Box 9008, Farmingdale, NY 11735-9008.

Good luck and don't let anyone convince you to invest in something you would not wholeheartedly recommend to everyone in your own family.

_ Dan Calabria is retired from the securities industry. He has worked for William R. Hough & Co. and Templeton Mutual Funds.