19 June 2012

Have You Been Motivated?

This post was inspired by a post over at FirstMillionBlog, where he wondered aloud about something I'd actually done. I responded over there, but I'd like to expound on my response there to hopefully benefit others. I know plenty of other people may feel as if they could get their financial house in order and start investing. Some might look and shake their head for a variety of reasons, but here it is anyway.
Last year, my dad came home and informed the family that a Get Motivated event was coming to town and that he'd get us all the $2 tickets. He'd gone before and was impressed, so he felt that it would be a good experience for my brother, mom, and I to have as well. The seminar itself isn't bad. Actually, I'd say it's quite a bargain at the $2 we paid. When we got there, the arena was packed with people who'd paid many multiples of that and companies literally had sent their workers by the busload. Speeches were given by Colin Powell, Rudy Giulianni, Bill Cosby, Mary Buffett, etc. who all had great messages about picking up and persevering through. However, it was interspersed with two "unannounced special guest speakers" eager to also motivate us.
It quickly became evident that these "guest speakers" were actually salesmen, not motivational speakers. While others had also mentioned money in their speeches, these two gentlemen came out on it immediately. Nothing wrong with that, but they kept also talking about how much there is to learn and how they wish they had time to teach it all. But conveniently, there were classes available to sign up for where one could get "training" in the various methods. I did have my doubts, but figured that I'd sign up for one of the programs to  see if my doubts were legitimate. And they offered free lunch!
I signed up for the training program, and it was mentioned that one could cancel at anytime before the end of the first day. So, one can go to the first day of training and decide after say lunch if they want to keep going with it. That's what I did, although I didn't cancel my order since I wanted to also check the software out. After signing up, one has access to the thinkorswim platform of trading software from TDAmeritrade. The software itself is decent, although much of the information it shows can be found on Google Finance or elsewhere on the web for free, just not as concisely. Seeing that they charge $40/month, I don't see much value in the website and software, but it could be because I don't know what exactly to use it for. It does a decent job of showing information on the stock and how it compares to others in the industry and it of course has the green and red arrows. The arrows were one of the main selling points at the seminar, being marketed as magic that could all but predict the market.
The training program itself pales in comparison to the software. Incomplete fragments of sound investment are mixed in with a sales pitch for pricey coursework and investor education. While this introductory class is only $100, the rest of the classes an run quite a pretty penny. (The full line of all classes is about $30k if all are signed up for at once. However, separate concentrations are offered and as such, one could actually spend over $30k by taking one concentration at a time.) Throughout the day, many references along the lines of "how much more you can do if you go on and take the _____ course", "I want to do ______ but you won't understand until you take the _______ course", etc. Also, special "deals" are offered all day long on the classes for people interested in moving their accounts over during the two days of the classes. Of course, numerous mentions are made to how everyone sitting in the room has made a wise decision and a first step to improving their financial lives. Wise sayings of Peter Lynch are invoked, as are some from Warren Buffett and several other well-known (and well-liked) investors.
While it may sound like they're trying to sell investment classes, what they're really selling is an investment strategy. Most of the classes they offer focus on trading stock options, not stocks themselves. Sure, they have a few stock classes, but those are basically brushed aside as useless once one knows how to trade options. One description given of options was like having the ability to take out a fire insurance policy against your neighbor's burning house. Who wouldn't think that's a good idea? Because of their nature, options can of course allow one to trade with a significantly higher amount of leverage than just trading stocks alone. Instead of having to buy the stocks themselves at a certain price and selling them when they (hopefully) appreciate in value, options allow someone to control the stock without having to actually own it. Sounds great, what could possibly be wrong?
The insidious part about how they present options is that their approach would generally require a decent trade volume to be moderately successful (15-20 trades/week is mentioned as the ideal target in the training). All that trading can build quite a charge. TDAmeritrade, which is the company behind the classes I attended, charges $9.99 + 0.75/contract for trading options. Even a bargain broker like Tradeking still will set a trader back quite a bit every single time. Of course, that isn't mentioned in the class when returns are estimated, with robust exponential graphs to enhance the possibilities.Sure, there is an asterisk on everything mentioning no guarantees, but those are largely glossed over as irrelevant legal necessities. Some of the teachers talk about earning upwards of 25% annually return via options. Not necessarily impossible, but anyone attending should be mindful of the volatility of options and also because fees and taxes will eat returns, especially when someone is chasing the market. As with stocks, the broker will always make money, even if the trader is losing.
With all that being said, I'm not saying the Get Motivated events are bad and neither is TDAmeritrade. One can get good information at the event and if it's possible to get tickets at $2, definitely pack a lunch and plan to go. TDAmeritrade also does have quite a following and is considered one of the best investment outfits around. There are also plenty times and places to use options beneficially.
But two things are necessary to keep in mind, no matter what: who is making money here and success usually doesn't magically happen with returns that are handily outpacing inflation by double-digit multiples. Chasing get-rich-quicks will usually ensure never getting rich.

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