Why you Shouldn't Choose an Investment Newsletter or an Investment Fund by Looking at Past Returns.
You could get duped...
📉Investment Scams
…or Stock Picker’s Newsletter - How to get sign-ups.
There once was an investment newsletter writer with a large mailing list. This is the story about how he got paying subscribers.
He sent a newsletter to half his list predicting the markets would rise, and to the other half, he sent a newsletter predicting that the markets would fall.
Then at the end of every quarter, he would discard the addresses of the wrongly predicted mailing and send a new and opposite prediction to each half of the rest of the list that was directionally correct.
He repeated the process, and after 2 years he signed up the recipients who were amazed by his track record of predicting the 100% correct direction of the markets for 8 continuous quarters.
If he started with 50,000 subscribers, they would be left with 390 trusting (duped) individuals who would likely purchase the newsletter. Financial newsletters can cost upwards of thousands of dollars per year for a subscription.
How many people would say take my money knowing that they had Nostradamus as their stock picker?
***
“Proof is not necessarily truth”
Charlie Munger said:
On the ‘Think with Pinker’ Podcast
"It's even worse than that. What they do when creating new funds is they create 10 or 12 of them.
And then pick one that happens to win over some time frame. Then they show that funds' historical record - forever- showing that this particular fund had a big return which happened when they had practically no assets, and the return in dollars per year in those investment funds was terrible.
But it looks great when you see it as a historical record. It is fraudulent what they do.
What's interesting in the modern culture is that nobody in the mutual fund world sees this behavior as crooked and detestable. But it is crooked and detestable."
Did you know that when you divide text (like above with three ***), those asterisks are called “dinkus”!
Thanks for reading. Feel free to comment!
Well now, that's scary * * *
Great Article! I can't tell you how many times as a compliance officer I wrote "Past performance is not indicative of future results" but everyone hopes an email genius will prove that phrase wrong. I agree with Charlie, crooked and detestable.