Why Investment Services or Subscriptions Probably Don’t Make Sense to Purchase

I have a friend of a friend who works for a hedge fund and whenever I have a few drinks with him I try to understand what he does.  From what I can gather he has created an algorithm that tells him when to buy and sell stocks, derivatives and currencies on a large scale.  He makes an amazing living by anyone’s standards working for a hedge fund.  So, when I receive an e-mail advertising a new service I was confused and felt a little bit annoyed. Note: the reason I don’t name/link the company is out of respect for the co-founder who seems like a professional guy.

==WHY XYZ IS A GREAT DEAL AT $19/MONTH===========
1. XYZ Saves You Time

To make smart investment decisions, investors need to do hours of research. They need to dig deep to the extent that they understand the underlying value and quality of the companies they’re investing in. Otherwise, they end up investing without a compass.

This is a recipe for disaster, because without a compass, they end up selling undervalued stocks and worse, buying overvalued stocks.

XYZ provides you with that compass. It applies a value investing approach so you can instantly view the value and quality of the stocks you’re investing in. And, it does it fast.  XYZ does 2 hours worth of analysis in the time it takes to load your page.

2. XYZ Helps You Outperform the Market

Over the past 3, 5 and 10 years, stocks with a XYZ Grade of 90 and above have averaged around a 23-25% return annually.

With a modest portfolio of $5000, XYZ can help you achieve an annual return of over 20%. You’ll make over $1000 at a cost of $228 (Professional Plan).

And, that’s not even including the discount…!

Number 1, alone, may be a GREAT reason to look into the service, and I think they should have stopped there.  Providing a starting place for people’s research is valuable.  Is it $20/month valuable? Probably, if the person isn’t a straight index investor.

It is Reason Number 2 that gets me going.

If Someone is Beating the Market by That Kind of Percentage They Don’t Need your $20/Month

Let’s ignore whether the e-mail meets the numerous levels of scrutiny that this type of investment should meet (i.e. past results are not indicative of future performance and other legal language), but please, re-read that heading again.  and one more time.

If there is a company that is returning 23 to 25% annually they don’t need your $240.  They just don’t. What they need is to put their money where their mouth is and show the algorithm results to a hedge fund or investment firm and start making real money.

I refuse to believe that there is a couple of great guys that are altruistic and want to help you, help yourself.  Rather, what I think is happening is they created an algorithm that back dates amazing and can’t move it forward to the next step because either they can’t stomach it or it isn’t that great.  I think it is analogous to those who sold shovels and pans to those moving west during the gold rush – if those people really believed there were riches in “them hills” they would have kept all their tools and captured that fortune.  They didn’t because they knew there was more money in selling to those that want to take the risk…and I think that is what is happening here.

Have you ever subscribed to one of these services? Did you actually make any money? is this type of service just the 2.0 version of the subscription services of the past?

23 Responses to Why Investment Services or Subscriptions Probably Don’t Make Sense to Purchase

  1. Ravi Gupta says:

    I’ve never invested in something like that I never plan on it. It’s amazing how much $240 really is (5000 max contribution to an IRA means that $240 is 4.8%). I’m looking at index funds and several specialty ETFs later on.
    I agree with you, it would be nice to think that people are that nice. If they truly are making that money they should be retired.

    -Ravi Gupta

    • Evan says:

      Never looked at it that way…its amazing when you put things like that in perspective. Like if you spend a grand on your cell phone bill a year and you make 100K – then it is over 1% because of taxes lol.

      Paying to ignore phone calls can cost someone who makes 100K like 3 or 4% of their salary after taxes

  2. Dave says:

    I think you are right on with they back tested this and don’t have the stomach to move forward with their own money. If you can return 25% a year, you surely don’t need that $19/month.

    • Evan says:

      Dave,

      Having talked to the owners of the company I don’t know if it is the stomach part of it as much as it is they don’t know what they have (IF you believe the back testing)

  3. MC says:

    P.T.Barnum said, ‘there is a sucker born every minute’!

  4. krantcents says:

    I never used one of those services and never will. My portfolio consists of some stocks and mostly mutual funds. To me, slow and steady growth is better than a get rich scheme because get rich usually means get poor fast.

    • Evan says:

      The question I would have is did your Mutual Funds grow over the last decade?

      • krantcents says:

        Yes, however slowly! For example, I invested $35,000 in the Vanguard Healthcare Fund (1998) which is worth $78,000 today. The growth was through capital gains,dividends and share price. Unfortunately, I hold this in a brokerage account so it is subject to capital gains.

  5. many of my friends have such subscriptions and i too have heard varying opinions. personally i do my own research. i have heard some say that subscription services have helped them. i feel it can be used to reinforce / as a reference to solidify one’s own decision

    • Evan says:

      Reinforce/Reference makes sense so does provide ideas – I mean how many publicly traded companies are out there?

  6. It really annoys me too the second point. Not many people can actually beat the markets.

    I think subscriptions can be a tool and worthwhile for some. For example, I get analysts reports through my trading platform since it’s through a bank but I would love to get the other banks’ reports.

    It’s the promise of X and Y for me that just make it not worth my while. Lots of people are looking to hit the jackpot though, the compulsive investors probably through their money at it.

    Is Cramer really worth following?

    • Evan says:

      I think there is a site out there that actually provides Jim’s hits and misses – not sure about his public persona but if you read his hedge fund stories he made a TON of cash.

      But I bet he didn’t do it with a 19.99/month tool

  7. I’ve never tried something like this (too broke) but dont think I would – i’d prefer to just go with some index funds and perhaps some “play money” to buy individual stocks.

  8. “If Someone is Beating the Market by That Kind of Percentage They Don’t Need your $20/Month”

    This says it all!

  9. DIY Investor says:

    Grab your wallet and run in the opposite direction as fast as you can! If their approach has any merit they wouldn’t be scrounging for $20 a pop.

  10. Greg McFarlane says:

    Backdating is awesome, in that presumably some people can still be swayed by it.

    As I tell visitors to my site who are looking to get rich through technical analysis: “If I knew which stocks were going to rise 3000%, 300%, or even 30%, I promise you that there’s no way in hell I’d share that information with you.”

    • Evan says:

      I am just assuming it is based on backdating – the email didn’t have the requisite disclosures to let me know.

      As for your visitors…you would share but for a lot more than $20/month..probably more like 2/20 (common hedge fund pricing)

  11. 101 Centavos says:

    I’ve never subscribed to an investment service that purports to beat the market. I’m currently subscribing to a market information newsletter, but I’m re-evaluating the service, and may or may not continue.

  12. […] like my feelings on investment newsletter services, if Mr. Stevens had a way to actually win 60%+ of his sports bets HE WOULDN’T NEED MY MONEY. […]

Leave a reply