Custom Tailored, Unique Fit, Proprietary, and Particularly Individual

Today I conclude analysis of an e-mail from Todd Tressider of www.financialmentor.com. My belief that the financial industry offers less genius and innovation than its marketing and advertising portrays ties back to why we need not bestow fiscal responsibility on those who have previously violated public trust.

     > For most people wealth is not the result of learning the latest
     > investment technique at an over-priced weekend seminar, discovering
     > unknown secrets, or pursuing other magic pill formulas.

I think this is a great point. The secret sauce pitch sure is alluring: see it for what it is.

     > As John Bogle correctly stated, “The secret is there are no secrets.”

Great quote! I previously discussed proprietary offerings and I still have more to say on that in a future post.

     > That’s why designing your personalized wealth plan is the make-or-
     > break starting point. Get this step wrong and much future effort is

I somewhat agree with this. Financial advisers often advertise design of a wealth management (WM) plan tailored uniquely for the client. I don’t believe such plans need be as unique as they claim.

     > misplaced and generally wasted. Get it right and your financial goal

I won’t disagree with that…

     > is virtually assured (as long as you persist with sufficient action).
     >
     > It’s literally that simple.

… but I will disagree with this. Nothing is guaranteed—perhaps not even “virtually”—when it comes to making money. Very few things are “simple,” either: especially hard work.

     > The truth is wealth doesn’t require genius, special talents,
     > privilege, or luck. Those are all myths.

I agree! I think time-tested approaches can take us a long way.

     > It also doesn’t require any more work than financial mediocrity. It
     > is not about working harder: it’s about working smarter…

I somewhat disagree with this. I think people who claim to work “smarter” are gifted with intelligence (unnecessary here as just mentioned), developed with regard to cognitive strategies, or making excuses to be lazy. Those in the first two groups are successful. The latter group includes smooth talkers who I have seen fail. Hard work may take additional time but is more likely to get the job done. Taking shortcuts may amount to gambling in hopes that the essential elements will be completed.

     > In addition, your plan gives you a context for judging all the
     > “bright-shiny-objects” that can distract you. You’ll know what
     > fits, what doesn’t, and why.

Great point! See the second prerequisite discussed here.

The promise of unique fit and custom tailored is an emotional sales tactic because if you think someone cares enough to understand your particular situation then you are more likely to trust (establishment of rapport). This tactic can also serve as a distraction from a shady professional history, which is much more important than particularly individual.

See through the veneer because I seriously doubt a unique wealth plan is necessary for everyone. According to Genome News Network, people are 99.9% identical with regard to DNA. The influence of ego makes us feel particularly individual in our own minds. In reality, though, we’re all human beings who can be broken down into a few different categories when it comes to risk tolerance, financial goals, and WM.

Because it’s no more complicated than that, promising something exclusive is really not necessary.

And as Tressider said above, genius (or innovation) is also unnecessary for an effective WM plan. That “proprietary” label establishes an aura of mystery and intrigue when time-tested approaches will do just fine. Once again, do not be distracted from more important details such as the quality of person with whom you are dealing. While I generally believe in giving people second chances, avoid people or entities with a history of chicanery when it comes to your hard-earned money.

Todd Tressider Sales Dissection

Today I will dissect a recent e-mail received from Todd Tressider of www.financialmentor.com. This message is a preamble to a series of e-mails on designing a wealth plan. Tressider describes himself as a “money coach” and offers many resources at his website. My critical analysis subsystems are activated because while I cannot vouch for his quality of information, I can easily identify his premium offerings for sale.

     > How do postal workers and teachers achieve financial security while
     > certain doctors and lawyers get stuck in financial mediocrity?

More appropriately, certain postal workers and teachers because the odds are against them for purposes of this comparison.

     > Why do some people work hard and end up broke while others exert
     > far less effort and make millions?

I think he’s picking at the extremes here. I will venture to say most people who work hard have something to show for it; most people who do nothing have very little.

     > Answer: the winners have a plan based on proven principles…

“Proven” is a hollow claim. Conventional wisdom exists, which sometimes leads us astray. Attributions of success are anecdotal and “he said, she said.”

     > I know it sounds too simple and probably a little boring, but it’s
     > the only thing that works consistently in practice. Believe me…
     > I’ve tried ’em all…

I don’t believe him. I can easily imagine someone not trying everything without even realizing it.

     > …If you want wealth in this lifetime with a high degree of certainty

Based on what sample size does he claim a “high degree of certainty?” Without supporting evidence, I doubt this is a valid categorization. Remember my recommendation to challenge everything when someone has something to sell.

     > then there is no substitute for designing a plan where you set goals,
     > take consistent action, and practice daily habits that lead to wealth.

I agree because I consider much of this a subset of “hard work.”

     > Your wealth plan is a powerful tool because it creates clarity,
     > congruency, and consistency in your actions so you know exactly
     > what tasks to accomplish each day, week, and month to reach your
     > goal. No confusion or complication…

Nice alliteration here. Aside from that, I do agree that checklists can be very useful. Michael Mauboussin discussed this in The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (2012).

     > We are all given the same 24 hours in a day but we won’t all
     > achieve our financial goals… your wealth plan is essential.
     > Without it your goals are a rudderless ship spinning in
     > circles with no clear direction. Your results are random.

Tressider has some good stuff here.

I will conclude next time.

Annual Fraud PSA (Part 4)

“GetFolio.com” offered a guarantee in our last installment, which served as a springboard for my skepticism.

If in doubt then do your internet research. I found a forum post by “Ray” about the web site in question:

     > I would offer a guarantee like that if I was selling a service in
     > which I had no confidence. Following bad advice for a year to try
     > to get a $600 refund is a bad idea. To qualify for the guarantee, I
     > cannot tell if you must buy all of the “timely recommendations” or
     > just buy only from that group. Also, when do you close a position?
     >
     > The [site lacks] concrete info… an annual performance table for
     > the last 16 years (live for the last 10) has no other numbers like
     > intrayear drawdown. They calculate performance using stock price
     > when first suggested and year-end price. I don’t know how they
     > handle stocks sold during the year or held past year-end. I did
     > not see much info about exits on the site…
     >
     > [I can’t] see what they actually do without buying a subscription…
     >
     > No model portfolio or any other way to verify their performance is
     > available. They appear to suggest too many stocks to actually buy.
     >
     > I might like this service, but there are just too many loose ends.

If it seems questionable to you then it probably is to others as well. I highly recommend making use of the knowledge-sharing platform that is the Internet.

A post from another forum answers some of Ray’s questions:

     > I wanted to comment on my one year subscription ($600) with this
     > lousy company. First, their philosophy is to invest in very small
     > amounts–equal to 1/4 of 1% of the total amount you have to invest
     > per stock recommendation. Second, they only give you recommendations
     > when the market tanks… To become fully invested… would literally
     > take several years. After you calculate service cost and cost of
     > stock transactions, you would likely be losing money the first few
     > years until significantly invested… My problem isn’t necessarily
     > with their philosophy as it is their guarantee… if you don’t beat
     > the market, they will return your money. But you have to subscribe
     > the whole year and provide proof of recommended stock purchases.
     > In my case, not only did they not beat the market, I didn’t receive
     > any recommendations! Not one! According to tutorials, you’re not
     > supposed to purchase when the “Market Gauge” is > 20… [which meant]
     > I didn’t receive any recommendations for the whole year. Their
     > response? “The guarantee is only for new subscribers who follow
     > the recommendations and can provide proof.” How’s that for customer
     > service? “Hey, sorry we didn’t provide you with any recommendations
     > but I’m sure your $600 taught you something!” Yes… buyer beware!

Is this just a shill from a competing service? He doesn’t write with excessive gloss. He gives lots of consistent details. He makes sense. I personally think he’s conveying actual personal experience.

As with anything, you ultimately have to decide for yourself what reviews you believe. The more you read, the more of an appreciation you will get for different styles ranging from blatant deception to honest reality. I deem this to be the latter, which makes me reflect upon my skepticism and think “I couldn’t have said it any better myself!”

Annual Fraud PSA (Part 3)

As a PSA on the existence of shady tactics in the financial industry, I have been dissecting credentials originally tied to a bogus article/advertisement on riskless collars. Today I continue the journey by analyzing content from GetFolio.com.

     > Two things GetFolio.com does better than anyone else, and I
     > guarantee it…

Guarantees of performance are prohibited by the SEC. For that reason, the mere presence of the g-word in any promotional material for financially-related products is a red flag to me. Unless pertaining to a bond,* the word “guarantee” is not necessary and does not belong in financial marketing. Ever.

     > Ask yourself a simple question: Is investing a hobby, or is it a
     > serious business that you believe can make you real money? If it’s
     > a serious business, then what is it worth to ensure that you don’t
     > waste thousands of dollars, struggling to get ahead with risky and
     > ineffective techniques?

If it’s a serious business then you will be relying on yourself to learn/develop strategy as opposed to potential shysters selling trade ideas. I wrote about this here.

     > Try it now!
     > It really works

Any verbiage that seems too cheesy, aggressive, superficial, or pushy is a red flag. I believe people with true investing skill are humble, respectful, and will let the numbers (if there are any) speak for themselves.

Another theme I have seen in the newsletter/advisory industry is a tendency for charlatans to step on the backs of crooks. In navigating to the “guarantee” tab:

     > A healthy dose of skepticism about web-based businesses, much less
     > those that provide investment strategies, is a good idea…

Encouraging skepticism—even about a category [web-based businesses] to which he belongs—makes him appear more credible. Several times I have read/heard such content from people later named in SEC Complaints.

While believing myself to be authentic, I have encouraged skepticism many times in the blog so I do not consider it a deal breaker. I am also not selling anything here. If I were then I might avoid these optionScam.com posts altogether. I simply want to acknowledge the presence of hypocrisy in the financial industry along with the fact that recommending skepticism for personal protection is sometimes a sales tactic. Don’t forget to apply that scrutiny to whoever/whatever is offering the advice.

     > The GetFolio.com performance guarantee is offered to new
     > subscribers only… To qualify for the guarantee, you must
     > maintain a log of all trades taken throughout your subscription
     > period, documented via legitimate proofs of purchases.

That seems too loose for me. Do I need to hold positions until the service finally recommends closing at huge losses? How much money could I lose across all positions before seeking refund for a few hundred bucks? Would I be willing to send actual brokerage statements to a stranger to get my money back? Aside from security issues, the time and effort required to collate all this might not be worthwhile.

I will continue next time.

* A non-cancellable indemnity bond whose principal and interest payments are backed by an insurer is “guaranteed.”

Annual Fraud PSA (Part 2)

As part of my annual discussion on fraud, today I continue my analysis of ChangeWave Investing.

I next started to research Jon Najarian, a character I’ve seen, heard, and read many times online over the last 10+ years:

     > Jon Najarian is the founder of InsideOptions.com, and editor of
     > ChangeWave Options Trader (ChangeWave.com)…

Being linked with an entity linked with a fraud is enough to get me to run the other way. As I said last time, I generally think people deserve second chances but not when it comes to my hard-earned money. I strongly advise you adopt the same outlook. Let these people get their second chances with jobs carrying less fiscal responsibility.

     > About ChangeWave Options Trader
     >
     > ChangeWave Options Trader is a weekly advisory newsletter service…
     > Jon Najarian and the ChangeWave Research Alliance’s goal is to deliver:
     >
     > Trades that are successful 75%-80% of the time…
     > Winners that deliver 65%-75% gains as a regular course…

If it sounds too good (e.g. consistent 65%-75% gains) to be true then it probably is.

     > A few 200%-300% winners

Claims of extremely outsized performance are red flags. Most aren’t real.

     > ChangeWave Options Trader helps subscribers multiply profits as much
     > as tenfold, making one to two trades each week, and at the same time

“Multiply profits as much as tenfold” is a claim of outsized performance. Don’t believe it.

     > slash the risk factor with their “Pro’s Edge” trading strategy. They

Proprietary names of services/features that sound technically advanced or secretive are red flags. On many occasions, I have found little actual content behind these titles.

     > help subscribers avoid mistakes that trap most amateur options
     > investors, by using options the way that pros do.

Out of curiosity, I then poked around to learn more about this website I had stumbled upon:

     > The “wonderful” results of most systems are often the result of
     > computer modeling and the ability to pick the best curve to make
     > the retrospective data appear the most positive. When followed
     > prospectively, many of these models perform much more poorly.

I completely agree! I was intrigued.

     > What makes GetFolio different?

Claims of being different (or unique) are potential red flags characteristic of many sales pitches. By this point in history, I don’t think much in the way of genius or innovation exists with regard to successful investing. Commitment, above all else, is what’s required and what so often seems to be missing.

     > The GetFolio.com system was developed and tested, using real
     > money on thousands of stocks in both bear and bull markets…

I’m leery of that claim. I doubt they could substantiate real money trades on thousands of stocks in different market environments. That would require quite a bit of capital and an impressive feat of documentation.

I will continue next time.

Annual Fraud PSA (Part 1)

Dissecting and exposing Changewave’s “riskless collar” returns me to the path of public service announcements (e.g. here and here). I want to remind you that suspicion can never be relaxed about the financial industry notorious for bad apples.

I often do internet research because a wealth of information lies in wait to be found. I looked for reviews of Changewave Investing. Online reviews are dicey because they may or may not be sincere. Positive reviews are sometimes shills for the company (including friends, family, and marketing partners). Negative reviews may be industry competitors. The more I read, however, the more I feel I’m able to separate wheat from the chaff. The overall gist may offer some meaningful nuggets and red flags. To some extent, I go with my gut.

I found “Tobin Smith” linked to ChangeWave, which led me to this worthwhile article. Roughly halfway through I found:

     > Likewise, in March, the SEC settled a fraud case with Tobin Smith
     > of the NBT Group, a publication service also known as “Next Big
     > Thing Investor” and formerly named ChangeWave. The SEC
     > alleged that he failed to fully disclose how much he was being paid
     > to promote the stock of IceWEB, a fledgling data-storage company.
     > The problem here, for the SEC, was that he didn’t disclose he got
     > additional incentive pay if the stock went up. Smith and NBT neither
     > admitted nor denied the allegations in the settlement, but he has
     > to cough up profits and pay a fine [emphasis mine].

Anyone in the financial domain who has ever been linked to fraudulent activity should be avoided. This is an exception to my general belief that people deserve second chances. Too many times I have seen hucksters get “slaps on the wrist” for their misdeeds, which leaves the door wide open to recidivism. Take no chances with your hard-earned money; avoid those with a history of deceit.

After questioning Changewave before, I was now even more convinced about their illegitimacy.

As an aside, this article reminds us to be very leery of “hot” stock tips found online:

     > The problem is, all of this was a lie to dupe investors, the SEC alleges
     > in a complaint filed against Peterson in March. Peterson made the
     > bogus claims in the company filings, and backed them up with posts
     > on an InvestorsHub.com chat board during 2012-2013, says the SEC.
     >
     > Using the pseudonym “dick_schmidt,” Peterson posted over a hundred
     > times to the RV Plus board, calling the company “undervalued” and
     > urging investors to “buy up as much as possible…” When other
     > posters question his company’s financials, he responded: “Fed filings
     > don’t lie.” He also posted that if the contracts were bogus, someone
     > “would have detained the CEO or whoever was responsible for faking
     > something this extreme. Let’s use our common sense here…”
     >
     > …Don’t trust message boards unless you know who is really posting.

Great advice!

I will continue next time.

Riskless Collar (Part 4)

We pick up today on the hunt for some full disclosure about the collar trade.

     > Once you collect that $10,800 on those AAPL Jan 195 Calls, you’ve
     > started profiting on the collar, as you’ve brought your investment
     > down to $23,200. Remember, as long as the stock stays above the…

Wrong. I don’t profit on the collar until I’ve paid off the put (and transaction fees).

     > [put] strike price… you will be selling calls against them, and
     > that’s money you take in every time you initiate a new trade.

Money I “take in” is not net profit.

What about mitigating factors to my plan for selling calls every month?

     > All things being equal in this example, if you took in $10,800 a

“All things being equal” is qualification for additional details not given. And there are additional details: mitigating factors to selling calls every month. Complete risk management is an essential component of any viable trading plan.

     > month during the next 12 months, you could collect $130,000 in
     > that time — a profit of nearly $100,000 after you subtract the
     > initial investment in the long puts.

What must I do to prevent/manage the possibility of losing over $30,000? What is the likelihood of profit/loss? These are the key questions I need answered in order to actually evaluate this trading strategy.

     > COLLARS CAN KEEP GREAT INVESTMENTS ALIVE, THRIVING
     >
     > 1. The long-term put provides downside protection…
     >
     > 2. You cap… upside potential by… the short-term call sale.
     >
     > 3. You could generate monthly income with the sale of OTM calls.
     >     Or, you could buy back the call (between expirations) and roll
     >     it up to a higher strike price if the stock moves farther and
     >     faster than you had anticipated.
     >
     > But what would happen if the stock went down? Simple. Those long AAPL

In a cursory manner, he finally addressed a challenge to serial call sales. As a result, what he writes sounds great but is simply not reality. It’s an alluring tale for unknowing beginners—a prime target audience for newsletters and investment services. Once their money is on the line they are destined to discover what may be a very different, unfortunate truth.

     > Jan (2009) 180 Puts would expire worthless if the stock kept
     > going up, but if shares pulled back to $180 or lower by Jan
     > 2009 expiration, you could collect the [available] premium…
     >
     > That way, if you lost… on the stock, you could come out better
     > off than… if your shares dropped and you… [had no] protection.

Moderate (less than the cost of the put minus the initial short call) downside is another risk he fails to address.

     > Now, I know some of you might have gotten nervous about the
     > short calls because of the risk of assignment…

Yes!

     > But remember, you have the shares… so if you were assigned
     > to provide 1,000 shares of AAPL [that you bought for $181,
     > then] you’d be paid $195… a $14/share profit.

This does not address the threat.

     > And since you were planning on riding the stock up to that level
     > anyway, the work of closing a position might just be done for you!

This sounds deceptively great because much of the story has gone untold.

     > Jon “Doctor J” Najarian
     > Editor
     > ChangeWave Options Insider

Put this guy on the huckster list. He’s still around, too. Buyer beware… optionScam.com.

Riskless Collar (Part 3)

Today I continue review of another “riskless collar” article by a now-defunct service called ChangeWave Options.

     > LONGER-TERM PUTS CAN EQUAL SHORTER-TERM PEACE OF MIND

In my experience, ALL CAPS are a red flag for marketing/advertising material. Have your dissection tools at the ready.
     >
     > One of my favorite strategies is… a “collar…” spread… that helps
     > you to preserve profits on a stock that’s made some significant gains…
     >
     > …we’re buying put options as the first half of the trade. But the
     > second half of the trade… encompasses selling call options against
     > those long puts…
     >
     > For example, a stock that keeps on moving upward is Apple (AAPL).
     > To “collar…” 1,000 [shares of] AAPL, which is trading at $181…
     >
     > 1. Buy 10 AAPL Jan (2009) 180 Puts
     > 2. Sell 10 AAPL Jan (2008) 195 Calls
     >
     > Notice that I went… out into 2009 for the Jan puts at the $180
     > strike price. Not only does the long put position protect us from
     > a downward move as AAPL moves up, but it does so for a year…
     >
     > GET ‘SOLD’ ON THE IDEA OF SELLING CALLS AGAINST YOUR PUTS
     >
     > Notice that we’ve gone with calls that have a closer expiration date.
     > The goal with the collar strategy is to collect premium from those
     > short calls every month or so as you’re riding this trade till the
     > later expiration date of the puts.

This is both the goal and the prerequisite to make this trade profitable. How can this be threatened?

     > If you were to sell the AAPL Jan 195 Calls today, you could collect
     > $10.80 a share… But here’s the magic: If AAPL doesn’t trade… to
     > $195 by… Jan [expiration], this… premium… stays in your pocket.

“Magic” is a great buzzword.

     > Assuming these… short calls expire OTM, you keep that money and,

“Assume” is to make an ASS out of U and ME. Look sharp: are we missing something here?

     > once again, sell the calls at that strike price (or higher, if the
     > stock keeps climbing) each month. You might just be pocketing
     > premium again and again!

Sounds great!

     > ‘PUT’ THE ‘CALL’ OF EXTRA PROFITS ON YOUR WISH LIST

Sounds really great!

     > But back to those long puts — what you pay to buy those puts should

Wait a moment… what about mitigating factors to our plan for selling calls every month?

     > come out of the profits you make on the short calls. Those puts are
     > going for about… $34,000 to cover your thousand shares…
     >
     > That insurance may seem expensive, but look at it this way — you
     > spend $34,000… to buy those puts, but it’s a one-time expenditure…
     > a reasonable “life insurance” contract… for the next year.

We will have to wait until next time to find out about potential barriers to selling calls every month.

Riskless Collar (Part 2)

The saying is “no risk, no reward.” In the case of a guaranteed “MONSTER TRADE,” risk certainly abounds.

As another instance of potential pitfalls, consider the second example where I repurchase the stock at $150 after the first month and sell the 157.5 strike call for $300. Over the next 11 months, the stock falls back to the initial price of $100 thereby allowing all short calls to expire worthless. In this case, we have:

1.   -$1,200 to buy the initial long put
2. -$10,000 to purchase the initial stock
3.       $300 for the initial short call
4.  $10,500 for the initial stock sale
5. -$15,000 for the stock repurchase
6.    $3,300 for selling 11 monthly OTM calls
7.  $10,000 for the final stock sale

The total after one year is -$2,100 (-13% on -$16,200).

We fall short of making any money at all in these scenarios, much less making 50% annually. Note also that:

1. Transaction costs, which would lower returns, were left out of the consideration altogether.
2. Call premiums were dramatically exaggerated (by 50-100%), which has artificially boosted still-negative returns.
3. In the final scenario, I’m not even addressing the problematic implications of having to increase capital on the trade.

The fatal flaw in this trade design is to assume I can simply continue to sell OTM calls and generate revenue.

If the market hits the short call strike then we need to consider action. A further rally will cause the long put to lose money while stock gains are offset. I may be able to roll the short call out and up for additional credit and for a greater potential stock gain. I could consider selling the put to recapture remaining premium and repurchasing if the stock falls back near the original price. None of this protects from a big price gap, though, where I wouldn’t be able to escape profitably at all.

I found a similar article (advertisement?) in my archives from Dec 2007. In the spirit of this blog mini-series, let’s delve in.

     > Although I recommend simple, easy-to-execute trades in my
     > ChangeWave Options Trader service, I personally use a variety
     > of strategies to keep the profits coming and the losses limited.

I searched online for this newsletter/service. I was not surprised to see it no longer in existence.

     > …it’s hard for me to wrap my head around the idea that a lot of
     > people want to shy away from trading puts. After all, using put
     > options to protect… stock… is like purchasing… life insurance…
     >
     > I’ve heard folks grouse that they “wasted…” money on a protective
     > put because the stock didn’t go down. Huh?! It’s not like you buy
     > a life insurance policy and say, “Damn! I didn’t die and get to
     > cash it in!” You should just be glad that you had the protection
     > in place and didn’t need it!

That’s a compelling argument—and funny too! Remember what I said about humor…