HOW CAN YOU AVOID BEING A VICTIM OF FRAUD IN THE STOCK MARKET?
I made this video because I’m passionate about investing and about finding tools that can help people avoid unnecessary risk and losses.
Anybody can lose money on a bad investment but being the victim of stock fraud is pain on a whole different level. Thankfully, there are some tools that predictive analytics and statistics provide that can steer investors away from bad ideas.
One tool that has caught my attention is called the Beneish M-Score. This is a relatively simple tool that was developed to determine if there is a high probability that a particular company is manipulating its earnings. Students used this tool to flag Enron as a potential fraud 2 years before the information was public. In a 2012 research report, it also successfully identified 12 out of 17 cases of high-profile earnings manipulation using publicly available data.
Although the M-Score is relatively simple to implement it still requires some accounting knowledge. In a future video, I am going to make and demo a program that calculates the M-Score automatically. This will allow us to see how many companies the M-Score is flagging as potential frauds today.