Watch lists, ads, and vendors
Jimmy, over at Trend Following with CANSLIM wrote a piece on trader watch lists that reflects my own opinion about bloggers posting stock watch lists. He says, "I sometimes find watch lists funny... Most people who post up lists will point out all the great stocks they posted up. 'If you bought X stock when I posted it, you would have a XXX% gain!' They don't mention the losses, 'If you bought X stock when I posted it, you would have had a margin call!'" Interestingly, a few people with ads on their sites are getting pretty defensive in the comments section of Jimmy's post.
There's nothing wrong with having ads, but realize that as soon as you put them on your site, you're more than just a trader, you're also vendor. Ads can make a site look more authentic, but they can also be a red flag. I know enough to filter out the good content from the bad, but there are a lot of impressionable people who visit our blogs and websites that don't.
I wonder if traders look at the ads on their own sites? Most of the ads I've seen on trading and finance related sites link to pyramid schemes or aggressive vendors that could be a mismatch for the reader, or worse, outright fraud. I would never dream of posting a link in the body of one of my blog posts to just about any ad destination I've ever seen based on the merit of its content. I don't believe in protecting people from themselves, but when they come to me to learn in good faith, I'm not going to point them in the wrong direction.
There's a relevant discussion going on over at Trader Mike's blog. Michelle says:
- Other criticism directed at trading blogs is they do not say anything these critics do not already know, that you can get valuable information only if you are willing to pay, and if these bloggers were good at what they do, they wouldn’t be blogging. Apparently these critics have not considered perhaps the reason why a trading blogger writes is because he has something to write that has merit to someone, and he has a generous spirit, but nothing to sell — he is already making a good living.
In the comments over at Jimmy's blog, No Doodahs points out a trader's cost of not being some kind of vendor:
- If a "good trader" could make 40% annual and needs to take 10% off the top to pay for living expenses, or that same trader could make 40% annually and defray those expenses by having adverts and/or selling merchandise, which is smarter? Which will get that "good trader" retired faster? By the way, 10 years of 40% gives you equity that is twice as much as 10 years at 30%.
About a year ago an old friend of mine had heard that I was knowledgable about trading. He called me up and started asking me very basic questions about options. I knew he was beating around the bush, and sure enough I found out what this was about. He asked if I would go with him to an Optionetics seminar, mentioning that he had 2 tickets. I told him not to even bother with it, that it was crap. He argued that he had went to the same seminar a few days ago and was interested. He wanted me to tag along and look for anything suspicious and share my general opinion about it. I agreed since it was only an hour long and I didn't have anything else planned that evening.
A few days later I arrived at the seminar. The hotel conference room was full of probably 30 people, with at least half looking like they had been invited in off the street to fill up seats. My friend warned me that the guy giving the seminar was a slick salesman, and as soon as I got a look at him I almost laughed at how slick he looked. As he pointed at slides and moved around on the stage, he kept rousing the audience and asking us rhetorical questions to invoke a peer pressure crowd response. It was obvious that many people in the crowd had practice with this sort of thing on Sunday mornings, and that slick guy worked it. He stopped looking at me when he would rally his audience because I wasn't joining the hype, and my friend was probably too embarassed to get into it like he probably would have if I wasn't there.
The worst part that sticks out in my mind was when this slick guy told everybody that people who bought stock were suckers. He claimed they had a 1 in 3 chance to make money because stocks could, A) go up, B) go down, or C) stay flat. These uninformed masses were just giving away their money because they only profited when stocks went up. If you took the optionetics course he was selling, you would learn how to make money no matter what stocks did.
This premise is completely false. I've won free lunches and all kinds of change from people by playing a similar game. It works like this: after buying in for a 3:1 jackpot payout, the buyer flips a coin and I flip a coin. The jackpot pays out if both coins land heads-up. There are 3 possible outcomes to this game, let's look at them for a $1 buyin:
- Two heads land. I keep the buyin and give the $3 jackpot, so -$2 for me.
- One lands heads and one lands tails. I keep the buyin, so +$1 for me.
- Two tails land. I keep the buyin, so +$1 for me.
So anyway, after the seminar, I spoke with my friend about all kinds of reasons I thought it was crap. But he still wanted to do it. Even after what I told him, he asked me to reduce the cost of the course by signing up with him and getting a two person discount! Unbelievable. I said, no way, and to watch me go verify these suspicions with the slick guy who gave the seminar.
I waited my turn to speak with him, and the first thing he asked me was, "So are you going to sign up today?" He was kind of smiling. As soon as I asked my first question, he stopped smiling. I asked him about the hedge fund he mentioned that was run by Optionetics founder, George Fontanillis. I pointed out that the hedge fund could potentially be on the other side of a lot of the trades recommended in the course, and how could I be sure that wasn't going to happen. You know what he told me? "I'm not even supposed to mention the hedge fund. That's all I'm saying." He was threatened, and my friend could see it by the way this slick guy was frowning at me. I wasn't going to let him off that easily though. I kept grilling him until he just stopped responding to my questions.
There's more to the story, but we'll leave it at that. The point of that story was to show that there are harmful vendors out there who are selling it as hard as they can to whoever they can. There are also curious and well-intentioned people like my friend, who didn't know enough to see that what was being sold at the seminar was just hopes and dreams. That kind of mistake can cost an aspiring trader years to make up for.