Profiting from Your Confidence

If you ever watch come-ons for trading systems you’ll find that they are a lot alike. “It’s possible to make money in any type of market, whether stocks are going up, down, or staying the same.” They promise to teach you how to make money, but there is a catch.

It’s true that you can make money in any type of market. If a stock is going up, you can profit by buying a call option. If the stock is going down, you can profit by buying a put option. If the stock is going to stay steady, you can profit by selling both call and put options.

The unstated catch in all this is what if you are wrong? The answer is that you’ll lose money. If the companies behind these come-ons really could predict stock price movements, they would use their systems to make money rather than waste time teaching you how to do it.

These companies profit from your activity. You pay fees to them for their software and platforms and for teaching you, and they may get part of the trading fees you pay. They make money even if you lose money. They are exploiting your sense of confidence in predicting the future of stock prices.

Scott Adams of Dilbert fame said it well in his blog entry yesterday: “What the world really needs is a product that will prevent people from using their own dumbass ideas to invest.”

Comments

  1. geneMay 13, 2009 at 11:50 AM

    Someone said the real money in the gold rush was made by the people selling the picks and shovels. Brokerages are the new pick salesmen.

    One liner: "The broker I have, the broker I get."

    ReplyDelete
  2. Michael JamesMay 13, 2009 at 12:11 PM

    Gene: LOL -- great one-liner! I'm guessing that the oldest profession was profitable during the gold rush as well.

    ReplyDelete

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