Avoid the “easy money, no risk” pitches; And a brand new earnings trading idea
A good friend and business associate I know and admire sent me this email last night. And, as I get a lot of questions from you guys about random “incredible investment opportunities” and “easy money trades” that are very similar in theme to this, I thought I’d write up a full column that tackles these kinds of pitches.
What is you expert take on this:
Dear S&A Digest Reader,
Last Tuesday, we shot some incredible footage…
It involves a gentleman who’s generated tens of thousands of dollars… by doing something we estimate 99% of Americans have never heard of.
To get the full story, we hired a Film Crew… and flew our managing editor 1,050 miles to record all our footage. It concerns a unique approach to making money, which could have a huge impact on your retirement this year.
But what’s unique is how this story relates to a national media sensation of last October… which you’ll almost certainly remember.
To watch the on-camera footage, click here.
Sincerely,
George Rayburn
Executive Director, S&A Investment Research
Is this for real? Is this a joke? Should I look further into this?
You guys don’t have to watch the video (or you don’t have to watch more than about 30 seconds of it) to get the gist as we all have heard and seen videos exactly like this, and anyway, below I break it all down for you below.
Here’s a very detailed and expanded version of what I wrote him back:
I know Porter Stansberry, the publisher of this newsletter touting this video touting this “transaction” trading product, from the green rooms at various TV networks. This does not reflect well on his brand.The supposed “former Goldman Sachs” guy featured in this video made my skin crawl. Reminded me of a late night Saturday night informercial. Both he and the interviewer were literally reading scripts.And worse, do you notice how none of this has anything to do with Occupy Wall Street anyway? It’s a helluva stretch to get from the Occupy Movement’s anger of bailouts/socialism-for-the-rich and how trying to find some sort of hoped-for $500 daily trading payoff supposedly coming straight out of “rich options traders’ pockets” as a better way of “sticking it to the rich man”. That long stretch for a way to frame this stupid sales pitch is a big giveaway that the trading program he’s selling should be run from. As fast as you can.Moreover, as you’ll see by the end of this post, if he thinks that the people in Occupy Wall Street, have thousands of dollars to pay him up front for a possible system that might make them a few hundred dollars a day — he’s obviously not serious about that. He’s talking to investors and traders like you and me who are not sleeping on sidewalks in protest with no money and little prospects for upward mobility. If he was actually interested in helping Occupiers make money, he could give his product away to anybody who can prove they are needy. (As an aside, I give away subscriptions to TradingWithCody.com to police officers and soldiers, but not to Occupiers, but this guy’s not interested in that kind of thing.)As for the ethereal and unspecific “transaction” product that the guy in the video is selling — it’s not that he’s misleading entirely, as I assume he’s mainly talking about how if thousands of people bought and sold 3 or 4 calls or 105 or 555 or another round number of calls and puts of MSFT today and and there was a few cents of slippage and mispricing between the settlements across hundreds of brokers at the end of the day and especially when those options expire, there’s a little bit of money out there.But give me a break and let me be clear once again: There is no easy, consistent trick for making money out there. None. Nada. You work, you risk, you do it more times right than wrong and be smart and you get rewarded in the long run.Back to the video and its pitch…My stomach was knotted with anger by the time I tried to finish listening, watching and waiting for how this guy’s going to get paid by you and me at the end of this thing as he endlessly repeated sales-phrases I was taught NEVER to use as a stockbroker at Oppenheimer like: “What most investors don’t realize…” & “The banks are doing it and it’s perfectly legal and you can to…” & “Believe me…” & best of all, “I’ve found that anybody who follows my approach will always make money…”Back in 2005 or so, I once walked off a stage at a investor conference I was speaking at when Lenny Dykstra followed up my presentation by starting his own presentation with the very phrase, “Anybody who follows my approach will always make money and there’s no risk…” I literally interrupted him and told the audience, “That is nuts and I don’t want anything to do with this.” Google Lenny Dykstra to find out where he is now. (Prison, right?) Wonder if those people who followed his approach always made money…nope. There is no easy way to make money consistently out there.Let’s get back to this video at hand and note giveaways like this: “I’m 46 for 46 on those CLOSED trading ideas.” He probably has 301 that he’s been wrong on but he never “closed” those trades, so he’s still shooting 100%. That’s another trick that is why I always tell people that track records are totally fake-able.I’m still WAITING for his actual pitch. HE WANTS MY MONEY somehow, I guarantee that much.Oh, finally, — “The ONLY risk is that sometimes you might have to buy the underlying stock, but don’t worry about that. My approach helps prevent that disaster.” He finally notes that there’s some SERIOUS risks — you might end up with tens of thousands of dollars worth of stock that might drop 3, 5, 10% or more before you can sell it, in just one trade, wiping out all the $500-1000 gains this guy in the video is saying you can get “with no risk” following his approach. Does that still sound like “easy money” to you?And here we are now 15 minuts or so into this godforesaken video and I’m STILL waiting for the actual pitch where he asks for our money. Where do we send my money, Mr “Former Goldman, No-Risk Transaction” Man?Oh, he just told us how to get his help…It’s a detailed report. Just email him. Apparently, it only takes 15 minutes to make no-risk money too. But wait…it was just another tease. We still have to wait to hear how to get pay him to get this “risk-free” trading strategy.
And finally, there it is. For $2000 a year (soon to be $4000 a year because “so many people told Mr Goldman Sachs Man that $2000 was too cheap!) you too can learn how to risk tens of thousands of dollars trying to scalp $500 a day in the stock market.
The upshot of all this is part of what I’m always trying to drive home with you subscribers and with anybody else who cares about their money — don’t look for easy ways to make big money fast. Managing your money, trading stocks, investing in mutual funds, buying real estate, working hard to make more cash flow, finding the very best revolutionary companies to invest in, shorting companies who are losing out on their welfare-sponsored business model…these are the realities of your life and everybody else’s.
***EARNINGS TRADING IDEA***
Speaking of which, I’ve got a quick trading idea to flag for the more aggressive traders of you out there — Dell reports tonight. The stock is at 52-week highs (though it’s down HUGE from its all-time highs of years past). Michael Dell, the founder is back and I wouldn’t want to bet against him longer-term, but let’s think about what we know heading into their quarter tonight — PC sales, particularly Window PC sales are falling increasingly behind analyst estimates. Microsoft and Intel have both had to trim down PC sales expectations in past weeks.
Dell’s estimates meanwhile have been rising, and the biggest risk to buying some short-term puts in this stock is that there’s plenty of room for margin improvements, which would mean earnings could beat even if sales are weak. The second biggest risk to buying puts in Dell is that, as noted above, Softee and Intel have both talked down PC estimates — but their stocks have continued to rally. Dell is remarkably cheap (even after its recent move up from $13 to $18) and it could continue to go up tomorrow even if it has to talk down estimates.
So there’s risk, as always, to this pre-earnings gamble that I’m citing here right now. I’m looking at buying some Dell puts that would expire in March and have strike prices $18 or below. I’m paying about 60 cents each for them, so the stock would conceivably need to drop to $17.40 for these puts to pay…but more to the point, if the stock is down tomorrow, these will likely go up in value. I’m betting very small on this trade — and as I always tell you when we talk about pre-earnings trades — THESE ARE VERY HIGH RISK GAMBLES, and should not be the focus on your stock portfolio.
