This past weekend I was in Colorado for my first ever public speaking engagement and I was fortunate enough to be able to bring my family along.
We visited Boulder, the town of Estes Park, and spent the day in the Rocky Mountain National Forest where I learned a very important lesson.
If a hiking trail says that it is .5 miles long…….and you have a three and six-year-old with you…..it really translates into about 3,423 miles. Let’s just say I heard the phrase “Daddy can you carry me” a lot.
In many ways this trip was like coming fully circle for me. Almost forty years ago, when my sister and I were about the same age as my kids are now, we piled into an orange Volkswagen Bus with my parents and embarked on a cross-country trip that ended up in Colorado.
This is the same VW Bus that many years later I had my first sexual experience in, and then had a second sexual experience in, but then later learned at my 20 year high school reunion that that second sexual experience didn’t actually happen. The subject for another post and perhaps some therapy sessions, but I digress…..
After my speaking engagement was over, I hung out in the lobby area for a while answering questions from some of the attendees. One lady in particular was telling me about a trading newsletter that she was thinking of subscribing to.
She explained that she had gotten an email solicitation from a company that put out a newsletter each week that gave you their one “special pick” based upon a “proprietary algorithmic system.” And they even offered full six-week free trial period so that you could see how accurate the service was, so there was no risk.
I was about to go into a sanitized version of the anti-systems rant from my post “The Nexus Between Trading Systems And Ron Jeremy,” but she cut me off.
“….no, you don’t understand. Every week for the last six weeks their pick has made money. Every one. It has been one hundred percent accurate.”
I could see on her face that she thought she had found the Golden Goose. The Holy Grail. The Keys To The Kingdom. The Cache Of Meth Buried Beside The Train Tracks.
I hated to burst her bubble, but what could I do? First I asked her two questions; do they give both long and short picks and can you subscribe monthly?
“Yes, their picks can either be short or long, but they only let you subscribe on an annual basis,” she answered.
“And how much is that annual subscription,” I asked.
“It’s $995.00 for the year, but that’s less than a hundred dollars a month,” she replied. “You could pay for the whole year on just one of their picks.”
That’s when I told her that I was pretty sure that she was being scammed. She protested, how could that be since they had been one hundred percent accurate for six weeks in a row?
I then explained to her what the “A/B” stock scam was.
In days past this scam was only limited by someone’s bankroll because it involved buying up names and addresses and then physically mailing solicitations to potential marks. Nowadays with the invention of the internet and email, it doesn’t take much money to pull this off at all. Here’s how it works.
Get a database of names, let’s say fifty thousand of them. You then send them an email on Saturday evening talking about your “amazing system” built with “proprietary algorithms” by the children of former Nazi-rocket scientists.
You tell them that they don’t have to risk a penny and that you will give them a month, or six weeks, or whatever amount of free trial to verify the accuracy of their system.
Then you give then the first “pick.” It goes something like this…
“We believe $IBM is in a strong position and blah, blah, blah, and look for it to be up for the week.”
But of course you only send it to twenty-five thousand on the list. The other twenty-five thousand get something that says….
“We believe $IBM is in a WEAK position and blah, blah, blah, and look for it to be DOWN for the week.”
At the end of the week if $IBM is up you delete the “$IBM down” email recipients from your database. Then you send half of the “$IBM up” email recipients a note saying…
“We believe $AAPL is in a strong position and blah, blah, blah, and look for it to be up for the week.”
The other half gets the, “We believe $AAPL is in a WEAK position and blah, blah, blah, and look for it to be DOWN for the week,” email.
And so on….
You keep eliminating the half of the list that gets the wrong pick that week, until the free trial runs out. But by this time those that are left are ready to mortgage their house and kids to subscribe to your service.
Of course you only offer annual subscriptions, and once the money is collected, well the market is a unpredictable bitch-goddess and you never said there were any guarantees, right?
I have to give this lady credit though. After I laid out the case she laughed about it and thanked me for explaining it to her and “letting her down gently.”
Not everybody reacts that way, and over the years I have had many people insist that I was wrong. Ultimately most ended up not just losing their subscription money, but even more on bad stock picks that were probably generated by no more than the flip of a coin.