The invitation read “300% and MORE return on your investment!”
With no money up front and a free seminar, what could I lose? Especially since this was about technology, not building down lines, and individual choice on where to invest.
All it took was so many dollars for the software, a monthly commitment to buy data, and your investment stake ($15,000 recommended, but your own choice) to buy your own selection of prime stocks. And perhaps 30 minutes a day, to decide on your actions.
More, when you signed up, you got access to a whole slew of experts who had been using the system for years. Plus they would put out a daily report, based on the same program, but with special analysis formulae that these experts themselves had developed to help them make a fortune.
You could not ask for a much better proposition!
Did it work?
Well…
Over some six months, we slavishly followed the system. Each morning, before the stock exchanges opened, we would download the previous day’s data, take the daily report from our experts, make adjustments to include new stocks, get rid of old codes, so that our database was always as up-to-date as we could make it.
Then we would decide on which shares to sell. That was one great feature of the system – it would suggest when a stock was on its way down, and hence you could sell at close to the high point. Naturally, if it was still going up, you would not sell – you really want to maximise your profits on the transaction. So, in would go the sell orders, ready for the day’s opening.
The next step was to find the best stocks to buy on the day. The numbers varied daily, but, most days, we had three to five “excellent” buys and a couple of risky ones, although still good potential buys. In six months, I think there were only a handful of days when we had nothing to choose from. So, in would go the buy orders for that day’s trading.
As promised, the whole process took between twenty and forty minutes. Then we’d wait for the next day.
Naturally, not all recommendations worked out. From our forays into buying and selling (limited by our available funds – we were using the recommended amount – so we never went much beyond $15,000 on the market), most of our investments were sold at a profit, and a handful were sold at a loss. However, on the whole, we had more “ups” than “downs”.
There’s no complaints about this side of things. Our REAL problem was our fellow investors.
You see, when we signed up at that first seminar, some forty others signed up at the same time. And this was just one of perhaps ten such seminars. In essence, some two hundred people were starting to use the same system at the same time.
You see, one of the recommendations was that we should never buy more than 10% of the average daily volume in a share. That’s fine, except that if 200 people buy the same share, and each buys 10% of the daily volume, what happens?
Right!
Suddenly the volume is 20 times the average daily volume. Worse, the share price would suddenly skyrocket (if we were all buying) or plummet like a stone (if we were all selling).
It wasn’t that the system was wrong, but that it was suddenly working with skewed data. If the selected shares were high volume in the first place (where none of us could afford to buy 10% of the daily volume), the sudden increase made no difference, but the smaller shares, where we all concentrated on…
After seeing this effect in the stock market, we looked at many other markets. It’s amazing how often the same thing happens. The systems recommended are not wrong, but they just can’t handle the effect of so many newcomers, each doing the same good thing. It just takes a long time before all the waves created die down.
Strange thing: my own mentor got out of the share market just as we were breaking in. Why?
As he put it: “Watch for the Newbie Trap!”
We didn’t lose money in the process, but we sure learned that the Newbie Trap exists, and it does catch a lot of people!
Objectively, what they delivered worked as promised. It was us parvenus who were the problem…
40 of us signed up at the seminar; that’s not counting other seminars. That’s a lot of parvenus coming on board at the same. Think of it: some 200 or more people all following the same rules on the same stock selection.
about it: if 200 people see the same good buys, and all of them act on it, what happens? It doesn’t matter that the stock is a real goer. The statistics used in selecting the stocks get skewed, throwing the system.
doesn’t matter the market you are in. When parvenus join in large numbers, the market becomes “unpredictable”, and the chances of losing your stake increase exponentially.
No wonder the old-timers run for cover!
