Investment Newsletter Scam

For some reason, this curve-fitting exercise reminds me of the investment newsletter scam.

This scam may be executed in two different ways, and either is good reason to avoid investment newsletters. Technically speaking, I don’t believe they are illegal. “Scam” is an informal term whereas “fraud” is a crime. Both are deceptive, however, and would be categorized as optionScam.com.

Imagine the following hypothetical scenario.

I can probably sell lots of subscriptions to my investment newsletter by heavily promoting the winners and making the losers disappear. What if I were actually to publish many investment newsletters over the next few years? Suppose I publish under different pseudonyms and offer them online for free. I don’t market or advertise, but anyone can access them. They’re located by internet search engines with verifiable time/date stamps. This is a legitimate service.

Out of 10 newsletters, nine underperform and one significantly beats the overall market. I go all-in and market the one:

      > OPTIONFANATIC NEWSLETTER BEAT THE MARKET BY 10% OVER THE
      > LAST THREE YEARS!!! ONLY 100 SUBSCRIPTIONS WILL BE OFFERED
      > FOR $59/MONTH OR $649 FOR THE FULL YEAR! ACT NOW!!!

This was Just. Random. Luck. One out of 10 did well and the others sucked! Although future subscribers are unlikely to profit based on these odds, I have the documented performance to support my prior success (I simply neglected to mention the losers). What an ingenious way to eliminate performance stress and accountability. It’s a lucrative and innovative proposition.

For all we know, this may be a popular tactic. Often when I see an enticing sales pitch, I conduct an internet search for the name + “scam.” As an example, for the hypothetical “RocketOne Trading,” I would search “RocketOne Trading scam.” I have seen lots of reviews on forums or websites from people who have been outsmarted by nefarious entities. I’ve also seen many shill [fictional] recommendations. Check out the second paragraph here. It’s not infrequent to see [sketchy?] companies go out of business and newsletters fold, but new ones are always popping up. Some of these get called out by online mentions (e.g. “X newsletter is actually being Y person who was slapped with a prior SEC complaint”). Indeed, many of these may be orchestrated by a few key players.

This investment newsletter scam could be perpetrated another way. Imagine I send out stock recommendations to 2,000 random people: 1,000 each receive buy or sell recommendations. A few months later, I follow-up with a second stock recommendation to the happy half: 500 each receive buy or sell recommendations. A few months later, I follow-up with a third stock recommendation to the very happy half: 250 each receive buy or sell recommendations. After 21 months and roughly 4,000 mailings, 15 ecstatic people will have received seven consecutive profitable stock recommendations:

      > EXCLUSIVE OFFER FOR OPTIONFANATIC NEWSLETTER SUBSCRIBERS:
      > ONE NEWSLETTER PER MONTH FOR ONE YEAR: ONLY $4,999! GET
      > IN BEFORE THE DOORS SLAM SHUT!!

How likely are the 15 to believe I am the stock whisperer and to subscribe at a moment’s notice?!

Including the curve-fitting exercise from my last post, these are all forms of optimization. I have probed everything, selected, and marketed the best [without breaking the law]. Admittedly, I haven’t told the whole truth, and my actual probability of being right next time is only 50/50 (at best). Nonetheless, from the other side the prospects sure must look amazing!