Program that predicts market. Scam?

[MaxPowers]

My dad went to a seminar the other day. These guys, or a company, or magazine or something is selling a program that supposedly monitors trends in the market as well as when top executives buy and sell their own stock as indicators to buy or sell. I told him this is total BS. I think he was so convinced because the seminar had thousands of people there and supposedly Rudolf Giuliani and Colon Powel spoke about how great it was.
Anyway, he is 60 years old with no retirement, so I think he is desperate for a way to make some money because he is getting old. I don't know much a month it is, but probably a lot, because he had to pay $100 to reserve himself or something, but he can get that back if he backs out.
Help me convince him that there is no magic program. Or convince me there is... I do not want him spending his money on something that does not work, and then more money in risky stocks. He would be convinced by articles debunking this type of thing.

[jeffrey]

If anyone had a system that could truly predict the market with no risk, they would simply keep it to themselves and make huge amounts of money. Why would they ever give the secret away since it would be worth so much more than they could ever get hawking it to individuals? The old saying applies now more than ever with the economy in a down cycle: if it sounds too good to be true, it is...

[kork13]

Agreed.... If you take a step back and look at it reasonably, stuff like this can only be a scam. Yes, you will receive investing advice. Will it be good? No one knows. Would he make money? Sure, he could. But it wouldn't be much more than it would be if I were to take my money and start trying to pick stocks.

In the end, he's paying for a program that doesn't do him any good. He could pick stocks with just as good of accuracy himself, or by just investing in regular mutual funds/bonds, he can have much more security, it will cost him less, and he won't be relying on something that can only let him down. I hope he doesn't go through with it.... losing his initial $100 is much better than potentially losing tens of thousands of dollars... I wouldn't trust $20 to that program.

As for the people who they insist have done well with their program, that's simply a matter of chance. If they get enough people into their program and give them all slightly different recommendations (that's how these 'picker' programs work, btw.... everyone gets different "picks"), eventually someone's gonna get lucky and actually make a bunch of money.... just might only be 1 in 1,000 or 1 in 10,000.

[disneysteve]

Just like the UPS scam thread the other day, it amazes and saddens me that people continue to believe this garbage. Of course there is no sure fire, risk free method for predicting the movement of the stock market. If there was, do you think I'd be busting my butt every day to bring home a paycheck? And do you think the people who discovered it would waste their time running seminars to teach others how to do it? Of course not. They'd be flying around on their private jets or sailing on their yachts enjoying the good life of the super-rich.

Of course, these guys know no such thing. They do know, however, that if they get 1,000 people to each pay $100 to attend a bogus seminar, they pocket $100,000 for a couple of hours of work. Now that's a job I wouldn't mind having, though I probably couldn't live with myself if all I did all day was rip people off.

[MoneyTrev]

Don't buy it.

There are too many things that happens in this world that changes predictions in a fraction of a second.

[bbm]

What they are trying to sell is either day trading or technical analysis. The small returns that both generate are significantly reduced by the transactions costs. That is, if there are any positive returns. Technical analysis is the idea that since a lot of people are buying, you should buy too and ride the wave (think tech bubble in the 90's). Or if a lot of people are selling, you should sell too. They don't take anything into consideration except the direction a chart is moving and by how much it is moving compared to historical averages.

See if you can find a book called A Radom Walk Down Wall Street at a library. A financial professor does a pretty good job of poking holes into technical analysis.

There are no get rich quick schemes that would easily be presented to the public. If they are presented to the public, then they are likely to not even work anymore.

Oh yeah, I forgot to add that fast trading leaves your investments taxed as income instead of capital gains tax.

[Broken Arrow]

What they are trying to sell is either day trading or technical analysis. The small returns that both generate are significantly reduced by the transactions costs. That is, if there are any positive returns. Technical analysis is the idea that since a lot of people are buying, you should buy too and ride the wave (think tech bubble in the 90's). Or if a lot of people are selling, you should sell too. They don't take anything into consideration except the direction a chart is moving and by how much it is moving compared to historical averages.

Well, that's called momentum investing, although technical analysis does lend to that.

To be fair, I hear that some of the advanced technical analysis these programs can provide are actually pretty good for what it is.

Still, I agree that these programs (along with their subscription) are expensive, and therefore, it's not financially viable to trade with them until you commit a fairly large balance. (50k is the quoted minimum, though I think you can do it with 30k, but 100k is the ideal starting point.)

Lastly, let me just add my vote to "Nay" on this idea. I would never give a dime to anyone or any company who claims their wonder doohickey can predict the future.

[Car Insurance Guy]

Legitimate Trading Systems?

Now for a little fodder for thought...

Points taken. If Colin Powell had a trading system that worked, why would he waste his time hawking it to poor schleps willing to fork over good money for a dream? He could just as well trade away until his bank account was full. Possibly true. And yet, I'm not hearing from anyone who's actually been in the business. Just from others who call sellers of trading systems dishonest.

I agree with some of your thoughts. There are sharks in the trading education business. There are bogus systems created by conniving fiends who want nothing more than a lot of fools parted with their money. But just as honest attorneys don't like to be lumped into the same pit as slimy lawyers, so also some of these teachers don't deserve the same broad-brush of deceit.

As a one-time developer of a trading system and one who has worked with several companies who do the same thing, I can safely say there are legitimate trading systems on the market. Each system is limited in that not every novice trader can fill a bank account with them. In fact, most new traders fail. But that's not always the fault of the system. Unfortunately, online trading charlatans and others like them taint an entire industry. So be it. I just had to throw my two pennies in the thread.

BTW - no system works forever. Some last for days, others for years.

[Broken Arrow]

Each system is limited in that not every novice trader can fill a bank account with them. In fact, most new traders fail. But that's not always the fault of the system.

I like your post, and this point in particular.

The trouble, as you have pointed out, is that for all the technical wizardry that even legitimate trading platforms can provide, everything still boils down to the decisions made by the trader.

In other words, these trading platforms are not designed to somehow compensate a trader's weaknesses or inexperience, but rather, is suppose to enhance existing skills....

Of course, novice traders may not realize this, especially when they are being charmed by snake-oil salesmen.

[disneysteve]

I can safely say there are legitimate trading systems on the market.

How do you define a "legitimate" trading system? Sure, it might work sometimes but throwing darts at the business page to pick stocks might work sometimes, too. That doesn't make it a legitimate system.

That said, however, I read an article recently about a system of throwing dice at a craps table that actually involves holding and tossing the dice a particular way to get a predictable outcome. The system is real and does work. The problem is the technique is extremely user-dependent and very difficult to learn and perfect and do consistently well time after time after time. So the folks that developed this could start having seminars to teach others the technique but that doesn't mean a single person in the audience will ever be able to actually implement what they've been taught.

I suppose the same could be true (though I'm doubtful) of stock trading systems. I think one problem with these supposed systems is that the professionals who are using them are trading with millions of dollars and some average Joe trying it with thousands of dollars can't get the same kind of results on a small scale.

[Car Insurance Guy]

So the folks that developed this could start having seminars to teach others the technique but that doesn't mean a single person in the audience will ever be able to actually implement what they've been taught.

You're right, Steve. This is the crux of the issue. The crap shooting, horse racing, and stock trading system may work. My definition of legitimate is that it works at some point in time. Note that it will not always work (see previous post). However, the crap shooter, horse better, and stock trader is the person implementing the system. If they can't grasp it because of various weaknesses, its not necessarily the fault of the trading system marketer. Traders are their own worst enemy. Until a trader can muster up the necessary humility (and garner a few other good traits) the perfect system won't do them a bit of good.

But does this make the system seller a con?
IMHO - Not if they attach appropriate instruction for the human element.

BTW - As for the question of scale (i.e. teacher trading $1M - students trading $10K) that would be non-legitimate system.

[disneysteve]

As for the question of scale (i.e. teacher trading $1M - students trading $10K) that would be non-legitimate system.

If you have a system that identifies a stock to buy and you and I each buy it for $10/share but I buy 100 shares and you buy 10,000 shares, we are going to have a different outcome. If the stock goes up to $10.10 and we both sell, I've made $10.00 but you've made $1,000. When I subtract my commission of $14 to buy and sell, I've actually lost $4. When you subtract your commission of $14, you're still ahead by $986.

That's what I meant by the scale being important. The stock info was accurate. The price did go up, but I didn't invest enough to take advantage of it.

[vole]

It's hard-wired into the human brain to want to find patterns in life. Stock market being no exception. Just that it isn't there.

Many systems look back at data and then produce a program or system that works. Only problem is that it worked in the past but does not work in the future. That's the problem with retrospective studies for the stock market or for medicine.

For example, past presidents who had 7 letters in their last name were assassinated. Therefore a president with 7 letters is in danger.

What I do think is useful is information to making decisions along the line of Benjamin Graham's book. And along with that insider trading may offer info.

If upper management is buying stock, that indicates their confidence. And when they sell, it might mean they are worried but could also mean that they need money to pay for their daughter's wedding.

I know that I am doing no better than going to Las Vegas unless I put in all the effort that Benjamin Graham advises.

I've been screening for industries to invest in, but this is only the first step.
Industry Analysis, Business Statistics, and Financial Ratios
Otherwise it's just like rolling the dice.

-Dave