Recently a good friend of mine made me a proposition that was too good to be true–she had signed up for a real estate investing class and as part of this, she received free enrollment to a three-day seminar on stock/commodity trading. Not only did she receive a free three day ticket to this educational event, she also was offered a free guest pass–and she was looking for someone who would be interested in attending with her.
Normally I wouldn’t be able to take work off to attend such an event, even if it was free, but my current situation on leave enables provided ample opportunity to join her. My thought process was–I want to learn more about stock trading and it will be a really good test run for going back to work, both for me (attending an all-day event and pumping throughout the day) and notably my husband and his father, who will be taking care of our son when I return to work.
What I didn’t do, that I normally would do, was research the event at all before attending. I mean, free is free, and I thought it would be interesting as I’ve never attended any financial education events. I thought maybe my friend had paid enough for this fancy real estate class that the additional programming would be of quality. And, if not, I would get to spend time with this friend who I never see, and maybe I’d still pick up a thing or two that I don’t already know.
The only thing she mentioned regarding who was running the event was that it was from Rich Dad, Poor Dad. I’ve never read the book, but I’ve heard of it, so sounded credible enough (for a free guest ticket.) What I didn’t know was that I was in for a rather brilliantly depressing seminar which surely conned many individuals out of $20k to $60k. It managed to be both highly educational (if you know nothing about the stock market and trading commodities) all while managing to make it sound like it’s both incredibly easy AND incredibly hard to make massive % gains in short turns using Puts and Calls and Covered Calls and Naked Puts and Options and the Futures Market and so on.
Now, as a “buy and hold” investor, I know better than to believe I can beat the market consistently enough in day trading to end out ahead. Perhaps their “mentors” they sell for a heck of a lot of money can help one learn the ins and outs of day trading and their strategies may be legit to some extent–but do you really need to spend $40,000 to hire a mentor and license their software to do them? Of course not.
But, there was indeed brilliance in their pitch. I watched the audience (well most of the audience) fall for it. The show (and I call it a show because it was that, not a class) was hosted by a clean cut, attractive 23 year old dressed wise for his age. He was good. At his job. He negged the audience and filled them with hopes and dreams at the same time. Every concept was taught in a way where it felt extremely complicated but also easy to grasp, if only there was more time. It was crazy how each subject and topic was thrown out in a way like we were going got get back to it later… but we never did. Questions were not welcomed. The few that were asked may have been plants. He moved so fast it was impossible to ask anything.
My friend was quick to scold me on how I wasn’t paying attention on the first day and that my comments were rude and negative (admittedly I was wondering what I got myself into and half paying attention, and I did sent her a slew of links to articles on why this educational brand is a scam that night) and I apologized to her for being so rude and made a valiant effort to be positive and engaged the remainder of the seminar.
The second day was a bit better, in the sense that I learned something–though I learned something in a way that made me want to hire someone to teach me how to do it better because clearly your can’t do this on your own (I wouldn’t hire them, but they certainly were working me as much as anyone else in the audience.) Luckily as a guest I was ignored, mostly. Those who were class attendees each received a free 15 minute meeting with their “advisors” to come up with a “trading plan” — which, from what I overheard, was just an opportunity to hard upsell everyone on their very expensive classes. Before these meetings, the attendees had to fill out a form which listed ALL of their financial information including their assets, salary, etc. It seemed their target was people who have $100k+ in their 401k/IRA, who want to get better returns from it–especially those who have old 401ks they never rolled over. (The whole series started out with a very, very brief talk about how mutual fund fees are horrible and ETFs are better, to plant that idea in everyone’s mind early–even though $40k for a class is some fee.)
I could see a lot of people were falling for it. “Don’t leave here without a trading plan,” they coached us. Everyone lit up each time the instructor told “someone’s” story of how they got rich. I sat biting my tongue, wondering how everyone would believe these stories that may very well be completely made up. (Then I remembered Trump is our president, and it made sense.)
During day 2, they also had everyone in the room go to a peer-to-peer lending site and figure out how much money they could borrow for what rate. The general idea was borrow other peoples money and invest it to make money. Red alarms went off in my head, but everyone else seemed cheerful to learn they could take out $20,000 for 20%. I cringed thinking how many of the P2P loans I’ve made over the years have defaulted. The “instructor” let us know, pointedly, that putting in our information to find out how much we could get at what rate would be a soft credit pull, and would not impact our credit score. He failed to go into what happens if we cannot repay the loan because we’re making risky trades.
Risk was talked about only as something you have when you are sitting on the sidelines, not actively trading the market. My friend loved the seminar, and felt she learned a lot. We left day two with her telling me she is going to keep reminding me to “get insurance” on my stocks. That, of course, is because they did a very good job of scaring us all into thinking if we don’t own covered calls on our stock, we’re taking on too much risk. But, they failed to mention how covered calls cut our gains, and how the market over time goes up… so far.
My major issue with all of the ideas was that taxes were not mentioned at all. So even if you “won” more often than lost, you would be paying income taxes on gains and not able to deduct losses if you buy same stock within 30 days. When I mentioned this to my friend she didn’t want to hear it, She was so enamored with their show she could not imagine these folks were telling lies or that taxes should even be considered.
The big, big takeaway and fear mongering centered on the upcoming market crash. They showed the tech bubble and the housing bubble and now the bubble of capital being injected into the markets. The discussion on the economy centered on how money used to be backed by gold and now it’s backed by nothing. This means, supposedly, the market will crash, and it’s important to be trading not the up of the market, but its ebbs and flows. Making money when it goes up, down, and even sideways.
But then the logic started to fall apart. Their risk formulas, which I think are actually somewhat legit, still seem more risky then they implied. Basically you look at a stock’s trailing volatility and do a basic formula to figure out how much it might go up, if it’s starting to go up, and how much you’re willing to risk on this bet. So, you’re willing to risk $1 to make $9… a good bet. I’m still a little fuzzy on how they come up with their odds (and how charting really works since past performance rarely predicts future gains or losses of a stock), but maybe there’s something to it. If you can take less risk for more gains… as they put it in their illustration of a coin toss… as long as you win 60% of the time, you win. You’re the casino. If you can do better than 60%, you can win big.
Ok, sounds… great… but if that’s the case, why aren’t there a billion stories on the internet of people who took their class and are now bazillionaires? Why are they spending time teaching this class in the first place when they can all be enjoying the lavish lifestyle sure-bet, rapid investing provides them?
The “instructor,” and his directors behind the curtains, clearly knew this was a question that would come up and gave him a quick answer… he is wealthy, for sure, but he is still acquiring wealth and to do this he wants to be around all of these smart people all the time, which he has access to as an instructor (and we can have access to if we spend $60,000++ for a mentorship!) Hey, seems like a reasonable enough answer (not really, but then again, was anything reasonable enough in this “class?”)
Well, as PT Barnum reportedly said, “There’s a sucker born every minute.” This organization clearly knows it. I’m sure they aren’t looking for people like myself to attend these seminars, but they get plenty of takers anyway for their slick con business. It’s amazing these types of programs are legal, all under the guise of education.