I think it just comes home to the same prerequisite that exists in any market or investment avenue, and that is extensive research... can't play the game without it. Consider if he mentioned his plan to you initially and you hooked him up with your other friend prior to making any moves.
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I agree completely, knowledge and information is power and from an investment perspective that power gives a person to make better and more informed decisions; it may not mitigate the risk completely, but it may go some way towards minimising the risk.