Suppose you are on the 22nd floor of a hotel. You receive a call identified as security at the front desk.
The person tells you:
- There is a leak in a gas line on your floor.
- You must place wet towels across the door jam to keep the gas out of your room.
- Under no circumstances open the door.
- Turn off all the lights and other devices in the room to minimize the risk of explosion
- Turn off any cell phones, they are particularly dangerous
- Take a chair and use it to smash open the window so you will have fresh air if needed.
What would you do?
This scenario actually happened with the exception that they wanted you to throw the television through the window. Pre-digital TVs.
If you understand a hoax, you can deal with them better. They have predictable characteristics:
- Threat of harm or threat of lost opportunity
- Instruction or strongly implied action
- External authority or reliable source
- No available data to examine or verify
- An admonition to tell no one. Fear of panicking others
A hoax is the strong version of the possible outcomes. There are many near-hoaxes in our everyday lives. It pays to recognize them sooner rather than later.
If a spokesperson for an investment company says you must buy shares in Hokum Mining before they are gone or risk losing the biggest investment opportunity of your life, would you be interested? Suppose that recommendation came with a letter from a “world class” geologist who you did not know and was complete with a 50-page incomprehensible study. The shares are only available for a few hours. You are required to treat this information as confidential.
What should you do?
All of the elements of a hoax are present, although that word may be too strong for the situation. It seems easy in theory to say, “No Thanks,” but many do not. There are things from gold ads, to Nigerian princes trying to free the family fortune, to start-up opportunities.
Best advice. If something is offered to you, as opposed to you seeking it out, consider the six characteristics of a hoax. If any are present, better to walk away or at least do some serious research. There will be another deal another day. Skeptics survive longer.
In poker, there is a thought, “To fold is, at worst, a small mistake.” In life you can make a great many small mistakes if you avoid the huge ones. Keep that in mind when investing.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org