Welcome to another edition of Notes Along the Path!
Please consider sharing this with someone you know who might be asking themselves (or you!) questions about their financial future.
This month's topics:
- In the News
- The Worst Scams
- Revenge of the Nerds?
In the News
On January 22, CNBC ran a nice story on responding to Biden's freeze of student loan payments for eight months. My quote was small, but I am always happy to help reporters with financial stories.
Annual Review of the Worst Scams Out There
When was the last time you received a phone call or email from a scammer? You can probably answer in minutes since the last robo call.
Internet scams show no signs of letting up. Sadly, the problem may be getting worse. In its most recent report from the Internet Crime Complaint Center (IC3), the FBI said it saw the largest number of complaints and the highest dollar losses reported since the FBI established the center 20 years ago.
They recorded 467,361 complaints in 2019 and more than $3.5 billion in losses to individuals and businesses.
The costliest scams involved business email compromise, romance or confidence fraud, and "mimicking the account of a person or vendor known to the victim to gather personal or financial information," the FBI said.
"Criminals are getting so sophisticated," Donna Gregory, the chief of IC3, said. "It is getting harder and harder for victims to spot the red flags and tell real from fake."
But you can avoid becoming a victim with vigilance and common-sense steps.
1. Beware of the fake invoice or suspicious email. Be sure to check that email address. The name may be familiar, but the email address may be a long string of unrelated characters. Other scammers may have an email that is one letter off. Or they may use .net instead of .com.
Does an invoice ask you to provide new bank information? That's a potential red flag. A simple way to side-step a fraudulent transfer of funds is to verify you are using a trusted source, for instance, making a quick phone call to the vendor. If you are a business owner, require your employees to call and verify payment requests using phone numbers on file.
2. Scammers will pretend to be from an institution you are familiar with. You've probably received these emails or phone calls. Someone reaches out to you claiming to be from the IRS, the Social Security Administration, or another government organization. The caller says you owe money and that you must pay, or they will take legal action.
The email may have official logos, or your caller ID may reflect the government agency's name.
Let me be clear on this. The IRS will never make the first contact via a phone call and claim you owe them money. You'll receive a letter with details and steps you can take. If you receive a call, hang up the phone. Please do not engage the caller. Some may threaten or become abusive.
If you "settle" and pay over the phone, expect repeated phone calls as more "discrepancies" are found. In other words, they will extract as much cash as you allow them to.
3. Avoid the Social Security scam. In one version of the scam, the caller says your Social Security number has been linked to a crime involving drugs or sending money out of the country illegally. They then tell you that your Social Security number is blocked. For a fee, they will reactivate it. Then the scammer will ask you to confirm your Social Security number.
Hang up. The Social Security Administration will never call you on the phone and ask for your Social Security number.
4. Scammers will tell you how to pay. They often insist that you pay by sending money through a money transfer company or putting money on a gift card and then giving them the number on the back.
Others will send you a check (that will later turn out to be fake), tell you to deposit it, and then send them money. This is a common Craigslist scam. The caller wants to purchase your items sight unseen. Or they will want you to set up a PayPal account or some other type of electronic payment. (On the other hand, if you are selling items, cash is usually the best way to proceed.)
5. Pop-up warnings. Tech support scammers may try to lure you with a pop-up window that appears on your computer screen. It might look like an error message from your operating system or antivirus software. It might use logos from trusted companies or websites. 5
The message in the window warns of a security issue on your computer and directs you to call a phone number to get help. Please ignore it. You can always use your antivirus software to scan.
If you call, they'll likely give you worthless information--for a fee. They may also have you download malware or other unwanted software that the scammer claims will fix the issue.
6. Avoid phishing scams. Phishing is a cybercrime in which a person is contacted by email, telephone, or text message by someone posing as a legitimate institution to lure individuals into providing sensitive data such as banking, credit card details, and passwords.
Phishing emails and text messages spin a tale to trick you into clicking on a link or opening an attachment.
For example, they may:3
- Say they've noticed some suspicious activity or log-in attempts
- Claim there's a problem with your account or your payment information
- Say you must confirm some personal information
- Include a fake invoice
- Want you to click on a link to make a payment
- Say you're eligible to register for a government refund
- Offer a coupon for free items
Here is one example from the Federal Trade Commission (FTC): You may receive an email that appears to be from a company you are familiar with, such as Netflix. Not everyone subscribes to Netflix, but tens of millions do.
You receive the email requiring that you update credit card or bank information for payment. If you comply, you've given criminals personal information they can use to steal from you. (If you are unsure, go to the company's website and check your information there.)
Also, be careful about clicking on links or attachments that could compromise your personal information or lock up your computer. Use these four steps to protect yourself from phishing:
- Use updated virus protection software and keep your browsers and operating system updated.
- Protect your mobile phone by setting software to update automatically.
- Protect your data by backing it up.
- Protect your accounts by using multifactor authentication, which means you will get a text or email with a passcode when you log into an account.
Please note that some of these emails/texts now include a warning not to give out the passcode to anyone. Why is this needed? Some scammers will attempt to log into your account, then call claiming they are from that company and need your passcode. Just hang up.
7. Steer clear of the fake Facebook page. Scammers sometimes set up a fake Facebook page of a well-known company. Scammers then add a post claiming they will give away autos, free airline tickets, or thousands of dollars to "hundreds of lucky winners." Share the post, comment, click on a provided link, and fill out the requested information.
If you look at the FB page, you'll notice it's brand new as there are few posts, and it lacks a verified FB badge indicating its authenticity. However, you'll see hundreds of individuals who have dutifully complied with the scammer's requirements. Sadly, they will win nothing but grief.
What to do if you are scammed
Be vigilant and use common sense. Anyone can fall victim to these scams. If you have paid someone, call your bank, money transfer app, or credit card company and see if they can reverse the charges.
If you gave personal information, go to [[https://www.IdentityTheft.gov IdentityTheft.gov]] to see what steps you should take, including how to monitor your credit.
Did a scammer take control of your cell phone number and account? Contact your service provider to take back control of your phone number. Once you do, change your account password. Passwords should be lengthy and include numbers, letters, special characters, and capitalized letters. Short passwords can easily be hacked using computer programs.
"When you report a scam, the FTC can use the information to build cases against scammers, spot trends, educate the public, and share data about what is happening in your community. If you were scammed, report it to the FTC at ReportFraud.ftc.gov" 2
Finally, be vigilant and use common sense. Avoid clicking on suspicious links, and never give out personal information to a stranger over the phone. You'd never tell your best friend your annual income, so why would you give a suspicious caller your passwords, bank information, date of birth, or your Social Security number.
Sources and further reading
1 [[https://www.consumer.ftc.gov/articles/how-avoid-scam How to avoid a scam]]
2 [[https://www.consumer.ftc.gov/articles/what-do-if-you-were-scammed What to do if you were scammed]]
3 [https://www.consumer.ftc.gov/articles/how-recognize-and-avoid-phishing-scams How to recognize and avoid phishing scams]]
4 [[https://www.consumer.ftc.gov/blog/2018/12/fake-calls-about-your-ssn Fake calls about your SSN]]
5 [[https://www.consumer.ftc.gov/articles/how-spot-avoid-and-report-tech-support-scams How to spot, avoid and report tech support scams]]
Internet forums vs. the professionals, or revenge of the nerds?
Why have stocks been on such a profitable run, overcoming a dangerous pandemic that has rocked our economy?
The tailwinds that have fueled the advance are numerous:
- Low interest rates,
- liquidity from monthly Federal Reserve bond buys,
- the Fed's forecast that rates will remain low for a considerable period,
- fiscal stimulus and talk of more fiscal stimulus,
- an expanding economy,
- better than expected corporate profits
When sentiment becomes overly bullish, any negative surprise can create volatility. That's precisely what happened at the end of January. And it occurred in an unusual way.
Professional hedge funds have heavily shorted several stocks, which they believe to be overvalued based on current fundamentals. Without getting into the particulars, shorting is a risky way to make money when a stock falls in value. Theoretically, the loss on shorting is unlimited since there is no ceiling on a stock's price.
With hedge funds hoping to profit, young traders using Internet forums (particularly WallStreetBets on Reddit) encouraged each other to pile into several securities in hopes of effecting a 'short squeeze.' The goal: inflict pain on the professionals while turning a profit.
The stock that received the most attention was GameStop (GME), a struggling video game retailer that's been heavily shorted (CNBC, MarketWatch) by hedge funds. GameStop was selling below $20 per share in early January and rose to a peak at over $480 on January 28. GameStop next closed at $325 on January 29. The Reddit 'nerds' cost hedge fund Melvin Capital to lose 53%, requiring a bailout of $2.8 billion from hedge fund billionaires Steve Cohen of Point72 and Ken Griffin of Citadel. [link]
What worried some investors late last month were fears that hedge funds being squeezed on GameStop might be forced to sell other stocks and raise cash. To some extent that happened, but it only triggered one big down day.
Powerful tailwinds have boosted stocks. Mix in social media, an Internet-driven rally, zero-commission trading, and idle hands that have been distracted from their pre-pandemic routines and unexpected volatility almost had to surface.
Volatility can happen for any number of reasons, and a correction can never be ruled out. But the economic fundamentals that lifted stocks over the last year remain in place.
As February began, interest in GameStop had begun to recede, and the price fell sharply. Is the insurgency over, or might Internet traders look to other stocks?
It's a question that doesn't offer an immediate answer. However, we know that longer-term economic fundamentals and economic activity determine stock prices.
As billionaire investor Leon Cooperman said on CNBC late last month, "At the end of the day, the stock market reflects economic progress or the lack thereof. Water seeks its level."
Over the longer term, relying on time-tested investment principles and avoiding decisions based on short-term volatility has historically led to the best outcome. We have crafted your financial plan based on many different factors. It is the roadmap to your financial goals.
As I've said many times before, the plan is designed to remove the emotional component that may encourage you to sell when volatility strikes. It is also designed to prevent you from taking on too much risk when markets surge and even seasoned investors suddenly feel invincible.
Table 1: Key Index Returns
Source: MSCI.com, Morningstar, MarketWatch
MTD: returns: Dec 31, 2020-Jan 29, 2021
YTD returns: Dec 31, 2020-Jan 29, 2021
*in US dollars
I hope you've found this review to be helpful and educational.
I understand the uncertainty facing all of us. We are still grappling with an economic and a health care crisis, so of course there are always questions. If you want to talk any time, let's have that conversation. That's what I'm here for.
If you like it this newsletter I encourage you to pass it on to any contacts you have that might benefit.
I remain honored and humbled that my clients have allowed me to serve as their financial advisor. Thank you for your support.
All the Best!