We have too many "gurus" in the trading community who really only want to help themselves.
It's a new year. Humans love to start it off with revamped plans and goals, several of which include making money in the financial markets. For the uninitiated, the Internet will make this an ultra-complex task, as marketers and salesmen disguised as experts will sell ads inundating every corner of the web, making it a real challenge to find high quality information, free of hype, BS and all sorts of manipulative techniques.
If you are new, if you still haven't suffered disappointment from countless trading newsletters and publications, this brief guide will help you spot fake options advisers. By the end, you will know how to effectively identify "the guru", a dangerous species always on the prowl, who may become a challenge to the health of your trading accounts.
The guru will have a website. On it, you will find track records that ALWAYS show unsustainable annual portfolio returns in excess of +50%, not one year or two, but several of them. These track records always go back at least 3 or 4 years of supposed trading activity, even though nobody was there at the time to confirm, and even though a basic search on WhoIs.com will reveal that the site is barely a few months old. The track record may also contain tricks to make the guru look as good as possible.
The guru has a marked tendency to use Loooong sales pages on a white back-ground with bold claims highlighted in red and yellow. Claims about specific dollar amounts are common i.e. "Make $5,000 every month with this strategy", never mentioning how much capital is needed for such a gain, or how much risk is assumed. Dollar numbers sell more than boring percentages.
The guru will make a living off his trading newsletter subscription business, not a full time job, let alone his actual trading. Therefore, you will always have to pay a monthly fee to receive his trades, or an outrageous $2,000 payment for his Holly Grail course. The guru may very well not even trade real money himself anymore.
The guru eventually achieves Vedette status after a few month making profits, a couple of fake or paid reviews and testimonials and a few emails in the inbox feeding his ego. The allure of his new status leads to greater things: buying thousands of fake Twitter followers is one of them. From one day to the next he goes from 500 followers to 40,000. Yet, for such a famous person it is always fun how his tweets only get two likes and one re-tweet if at all. Once the status is achieved in his mind, you are too small for him to pay attention to you. You send him emails he won't reply to. You mention him on Twitter and he will barely acknowledge your existence. Before subscribing to a paid newsletter send questions. See how quickly he replies. Gauge whether he gave a pre-conceived boxed answer or if he made a serious effort at an individualized response. Ask him what trades he made during specific challenging periods of the market and how he defended them. Do explicitly request his opinion on what the most adverse conditions are for his strategy and how he would cope with them. If he doesn't reply and you're still not a client, let alone will he once you already paid him.
The guru may not have a trading newsletter business. He may just be someone who likes to endlessly talk about the markets on his site or on Twitter or StockTwits. These are usually experienced guys who know all the terms and can strike up a coherent and engaging conversation about the markets. However, this breed will never show a track record. The permanent track record is always a risk he is not willing to take, as it imposes a chance of loss of credibility that he is not willing to take. He likes to be taken seriously on everything he says or posts, so, why risk it with a dangerous track record commitment?
The guru will have a tendency to be a thin-skinned guy. He will unmercifully counter-attack when you question his trading decisions. He will rarely ever allow you to freely post comments on his site. He will censor you. He will be quick to block you on Twitter at the first slightly uncomfortable question. Nothing is allowed to disturb his Vedette status.
If the guru shows a track record and he has a losing period, he will have a serious tendency to delay posting the results for weeks. Even three or four months are not uncommon. He may eventually remove the track record all together, slowly morphing into a Furu (Fake-Guru).
The guru fears for the future of his venture, and in many cases he is not even confident he will achieve consistent results in the future. Therefore, he will have a tendency to protect his anonymity. The guru will feel safe hiding his identity behind a pseudonym. This practice has changed a little bit over time as more competition and easier access has lead many businesses to show a face, to show a real person. So, nowadays it is quite possible to find a guru who is not hiding behind anonymity. But if he is anonymous, that is a definite red flag. You want to see a name, a reachable individual. Email addresses are so 1995. If you see a phone number, a physical address, or a company name, those are all good signs to increase your trust.
The Guru turns into a Furu by re-inventing himself when things go wrong, which they will. He stops responding to emails from frustrated subscribers who lost their respective arrières. Shutting down his site and starting a new one is a simple as farting. He can easily accomplish the move and have a new shot thanks to his previously protected anonymity.
Here a final big red flag:
- The Guru will keep bragging that he lives in a multi million mansion, drives a Lamborghini and has a private jet. Really successful traders are modest and humble. They don't need all this BS.
Of course none of them has ever provided any proof of those returns.
Some of those gurus admit that they don't trade. It's like learning to be a surgeon from someone who is not operating..
Detecting the fake options adviser is fine art. It will take the novice investor a while to learn it, especially because the rookie "Wants to believe". It's not hard to trick him. Humans desperately want to believe there is a way to make money with no or little risk. However, after a while, detecting the guru becomes second nature and his smell easily detectable by a mile.
"Honesty is more than not lying. It is truth telling, truth speaking, truth living, and truth loving." – James E. Faust