The name Bernie Madoff is synonymous with investment fraud. In a recent jailhouse interview, Madoff spoke about why and how people get scammed by Wall Street.

Are you a "mark"?

Bernie Madoff, Master Con

In a con, the most important piece of the puzzle is the "mark". When it comes to investing, our human nature may be more at work than financial chicanery. There are some valuable lessons to be learned from Madoff, the con. Here are some quotes from the interview that make the point that we may be setting ourselves up to be a "mark" and how to avoid the mistake.

1. "If you don't understand something, then don't invest in it. People asked me all the time how did I do it, and I refused to tell them, and they still invested with me."

Transparency is classically defined as "much is known by many" or full disclosure of all the facts about an investment. Madoff refused to tell investors how he made money or what investments they owned. If you do not understand how the investment works, do not invest.

2. "If it sounds too good to be true, it is."

Madoff's investors watched their account values go up in value about 1% every month and never go down whereas conventional stocks and bonds were volatile month to month. Beware of wearing blinders that support your own biases and avoid investment reality. Risk and return are related.

3. "Use a qualified adviser. There used to be registered investment advisers out there that were educated and qualified on different financial investments...The biggest danger is when advisers have incentives to steer investors one way or another to get a bigger paycheck".

Many investors have no idea what they are paying for investment advice. Require full disclosure of compensation and costs to keep advisers honest. Require that the adviser be legally bound to place your interests before his or her own. It is called a Fiduciary Adviser and they must be registered with the State or the SEC.

4. "The best chance for the average investor is to put money in an index fund."

Who would think that Jack Bogle, founder of low-cost Vanguard mutual funds/investor advocate, and Bernie Madoff would agree on anything? They both agree that index funds or passively managed mutual funds/ETFs are the best bet for the average investor.

Click here for the complete interview