The founder of behavioral finance, Nobel laureate Daniel Kahneman, recently passed away. His work has made a huge difference in helping me understand how emotions can interfere with more rational decisionmaking.

It hasn’t stopped me from, at times, making nonsensical financial decisions of my own, but it has helped me pause so I can minimize them. Here are some behaviors or biases we all probably share:

• We have said to ourselves, “When this investment gets back to even, I am going to sell it.” This is silly. The investment doesn’t care what we paid for it. We should objectively be looking at each investment on its own merits regardless of what we paid for it. But it is psychologically hard to take a loss and rewarding to grab a gain, so we have held on to bad investments and crossed our fingers that we will eventually save face. Importantly, this applies to individual stocks, not asset classes (small or large stocks, international stocks). In time, asset classes should mean revert, but stocks (and currencies) don’t. With asset classes, peel from your winners and give to your losers. With stocks, let your winners run and trim from them when they are too much of your portfolio, then invest in something that you think has potential.
• We have sometimes said no to something that we don’t want to do today, but said yes to it if presented as a future endeavor. When the event eventually shows up on our calendars, we regret it. This is discounting the future. Before saying yes to something, try to picture yourself preparing for it and decide if it is something you really want to do.
• We have gone out of our way to save $5 on a $50 item but not to save $5 on a $500 purchase. Why? The ignored numbers are even larger on big purchases. We often look at the percentage of the transaction rather than actual dollars we are saving.
• In his book “Thinking Fast and Slow,” Kahneman wrote, “When people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when those arguments are unsound.” Good we’ve never done that, right? Right.

We are never going to eliminate our biases, so the key is to slow down and better manage our choices when we recognize we are making a high-stakes decision.

Spend your life wisely.

Ross Levin is the founder of Accredited Investors Wealth Management in Edina. He can be reached at ross@accredited.com.

In simpler terms, pig butchering is a version of smishing where scammers use social media platforms for cyber theft. As the name suggests, the victim is being ‘fattened up’ through validation and friendship before ‘butchering’ i.e. stealing of funds. A simple ‘Hi/Hello’ on a social media platform from a stranger’s profile can turn into a big scam.

Also Read: ‘Pig butchering’ scams: Zerodha’s Nithin Kamath explains how these work, shares ways to remain protected

How does the pig butchering scam happen?

Receiving messages or calls from wrong numbers was a rare occurrence a few years back. However, calls, text messages and connection requests from unknown people are becoming a frequent event on social media and dating applications. As the online relationship progresses, the scammer introduces what seems like a golden investment opportunity. 

This less recognized yet equally harmful tactic involves fake job offers. Here, scammers prey on job seekers by offering attractive positions, sometimes overseas. They use emotional manipulation to build trust.

Scammers often go the extra mile by creating fake apps and websites that mimic real financial institutions. Throughout the scam, there’s a heavy reliance on emotional manipulation. The scammer might act as a romantic interest or a supportive friend. This emotional connection makes it harder for the victim to doubt their intentions.

Once trust is established and the victim is emotionally invested, significant financial transactions are initiated. Whether it’s through fake investments or fraudulent job offers, the end goal is the same: to drain as much money as possible from the victim.

Also Read: Beware of Scams: Tips for safely investing in the digital world

Important steps to protect from these scams

Stay informed: The first step in protecting yourself from financial fraud is to be aware that these scams exist. Knowing how they work can help you identify and avoid them before it’s too late. Scammers are constantly devising new and sophisticated tactics to exploit vulnerable people, so it’s important to stay vigilant.

Always double-check: If someone online suggests an investment or job, research it thoroughly. Look up the company or offer online, read reviews, and see if it’s recognized by official authorities.

Be vigilant with online friends: Always be cautious when talking to people you just started talking with, especially if they start talking about finances or investments. Avoid discussing financial matters with people online.

Keep personal information to yourself: Never share your personal or financial details like bank account details, passwords, and other sensitive information with someone you’ve just met online. Sharing personal information makes it easier for scamsters to hack into your bank accounts, so be wary of who you share it with.

Never make rushed financial decisions: If you’re being pressured to invest quickly or pay for a job opportunity, that’s a major red flag. Scammers often try to create a sense of urgency, pushing you to act before you have time to think it over. Take the time to verify the legitimacy of any investment or job prospect.

Always check the source: Don’t just take their word for it. Do your research. Look up the company or investment platform they mention. Check for the company’s physical address, licensing information, customer reviews, and social media presence. Cross-reference details across multiple reliable sources.

Get a second option before investing: Before making any investment or sharing personal details, talk to someone you trust like a family member who knows finances, a friend or a professional financial advisor. Sometimes, just talking about it out loud can reveal red flags you might not have noticed initially.

Also Read: Shielding your digital assets: How cyber insurance can provide a safety net in the face of growing cyber threats

Key takeaway

While scammers continue to devise new and sophisticated tactics, arming oneself with awareness, caution, and diligence is the key. By staying alert to the warning signs, verifying the legitimacy of any opportunities presented, and resisting the urge to make rushed decisions, individuals can significantly reduce their risk of becoming victims. 

If a proposition or investment opportunity seems too good to be true, trust your instincts and analyse it carefully. It’s better to miss out on a potential opportunity than to lose your hard-earned money to a clever con artist.

Dhiren .V. Dedhia, Head – Enterprise Solutions, CrossFraud

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Published: 27 Apr 2024, 10:31 AM IST