There’s a common sales pitch in the financial industry, again trying to let you in on the secret to wealth.  There are radio ads that literally go on for hours, the guy has bought up the entire time slot for his ad, disguised as a financial talk show.  He talks in vague terms like “smart strategies” and how if you’re not a millionaire but only a thousandaire you need to generate massive returns on your money.  He’ll then invite you to a free seminar at a crappy Holiday Inn presumably showing you how to do this.  What an awesome, free service!

Yeah, not free.  The ‘seminar’ is really a sales pitch for their trading class, which only costs somewhere between $4000-$5000.  Oh.  And the strategies generally involve lots of trading, which requires additional commissions.  But they promise (but don’t guarantee) huge returns!  Let’s think about this.

• They can likely present testimonials from people where their system worked.  Of course, that is true, just be random chance!   Would you play the lottery based on the testimonial of the person who won?  (That’s rhetorical, please don’t play the lottery.)  What does the average person make?  Better yet, what is the full distribution of returns of all their students?  Including your enormous fee.  Uh, they won’t have that info.
• If their system did work, why are they telling you about it?  Even for $5K!  Remember how difficult it is to beat the market, if you find a system that works you want to keep it very quiet and make millions not sell it for thousands!  As soon as the word gets out–if the strategy they are selling was any good to begin with–the market adjusts prices accordingly and the strategy doesn’t work anymore.   Short-cuts to finding that out-sized return depend on the knowledge being tightly held.
• The strategies generally involve something called technical analysis which involves looking at the chart of prices in the past, finding ‘support’ levels (low prices) and ‘resistance’ levels (high prices).  Some people believe in this, I think its akin to a palm reader staring at your hand to tell you your future.  You can pay money for that too (again, please don’t do this either).  There was a famous study by a University in New Zealand that basically concluded technical analysis strategies don’t work.
• Some will offer to refund the seminar (or, more likely let you take the seminar again) if you don’t make money.  No risk!  Well, except for that money you put up for our high trading volume strategy.  We’re not covering your losses on that.  Sorry dude.
• They are for profit companies, which need to make money, after they pay for their long infomercials and all their staffs and all their offices and all their other overhead.  Where are they getting the money to cover all this and still make profits?  You.  Again, why not just use their own awesome strategies to make money?  Because they know it really doesn’t consistently work and this complicated business selling questionable information is much more lucrative.

Fortune magazine took a look at these services, and walked away less than impressed, you can read about it here.

Let’s say you have $10K to invest.  I suggest an S&P 500 index fund.  You decide to go with these guys.  One day one I’m ahead of you by $5k because I didn’t have to give it to these guys.  Over the next 10 years of investing, you don’t have to just beat the S&P 500, you have to CRUSH IT.  Like, double it.  And that’s just to break even with me and doesn’t include all the additional commissions you’ll pay with each trade.

In 2008, Warren Buffet famously challenged any hedge fund to bet him that they could beat an S&P 500 Index fund over a 10 year period.  Think hedge funds have access to these famous ‘strategies’?  People pay them a ton of money assuming they do.  One hedge fund management company took him up on the bet.  And got crushed.  They didn’t even have to wait for the end of the 10 years (the money went to charity).  It’s also telling that more hedge funds weren’t willing to take him up on the bet…maybe they know something after all.

You know where you can make lots of money?  Selling seminars to less informed people.  Don’t be one of these.