The Lemon Fool

Forgive me but I am not sure where to post this.

I've done rather well out of a lifetime of steady and consistent investing in investment trusts - certainly enough that I'm enjoying early retirement with enough funds to support my lifestyle. A number of much younger friends clearly want the same and seek my financial 'opinion' on matters. But the latest request has foxed me on a response.

A young friend (early 40s) has sought my advice with regard to buying some financial software for £2K from the 'get rich quick brigade'. They claim that with this purchase they can turn £5 into £30K in two years and 'guarantee' that losses will be capped at 5% in any year on the amount invested. Of course it's a scam or at best caveat emptor. But the problem is that the software is connected to investing in highly 'sophisticated' currency futures - certainly of the type I don't understand (and wouldn't want to).

So my problem, in a nutshell, is although I have conveyed my scepticism my young friend believes he has discovered Midas and because I can't exactly explain to him why I am telling him not to invest he keeps on asking me to disprove the blurb and the complex mathematical formulas within. He does not accept my 'I don't understand and I don't invest in what I don't understand and it is too good to be true &c' arguments.

Can someone please point me to way of dissuading him before he is tapped for £2K and perhaps more from these scammers. What can I say that might get him to think again?

Eb.

PS I have not gone into details of the forex instruments simply because I don't understand them and would not want to pretend that I do.

Simples:

If the software is that good, why are the vendors selling software and not using it to make themselves rich instead?

It's the same argument that applies to all vendors of "get rich quick" solutions - why is the author hawking a product instead of relaxing on a beach?

VRD

https://www.investopedia.com/articles/f ... x-scam.asp

Point him to this for a start.

If the software is that good would you be bothered selling it and not make the money yourself?

Raptor.

They claim that with this purchase they can turn £5 into £30K in two years and 'guarantee' that losses will be capped at 5% in any year on the amount invested.
Well as mentioned above, if I could do that i'd do it for myself- It'd pay better than flogging the software, and more users may reduce any 'edge' the algorithm has
Plus, if it were possible, the hedge funds etc would be doing it already, with $billions, using their supercomputers and top maths 'quants'

Eboli wrote:Forgive me but I am not sure where to post this.

I've done rather well out of a lifetime of steady and consistent investing in investment trusts - certainly enough that I'm enjoying early retirement with enough funds to support my lifestyle. A number of much younger friends clearly want the same and seek my financial 'opinion' on matters. But the latest request has foxed me on a response.

A young friend (early 40s) has sought my advice with regard to buying some financial software for £2K from the 'get rich quick brigade'. They claim that with this purchase they can turn £5 into £30K in two years and 'guarantee' that losses will be capped at 5% in any year on the amount invested. Of course it's a scam or at best caveat emptor. But the problem is that the software is connected to investing in highly 'sophisticated' currency futures - certainly of the type I don't understand (and wouldn't want to).

So my problem, in a nutshell, is although I have conveyed my scepticism my young friend believes he has discovered Midas and because I can't exactly explain to him why I am telling him not to invest he keeps on asking me to disprove the blurb and the complex mathematical formulas within. He does not accept my 'I don't understand and I don't invest in what I don't understand and it is too good to be true &c' arguments.

Can someone please point me to way of dissuading him before he is tapped for £2K and perhaps more from these scammers. What can I say that might get him to think again?

Eb.

PS I have not gone into details of the forex instruments simply because I don't understand them and would not want to pretend that I do.

Only just noticed this, but if you have not already managed to dissuade your friend, perhaps this may help:

- I assume you mean turn £5k into £30k as you cannot trade currency futures with just £5. In fact you cannot trade them with £5k either, so this is probably spread betting or something similar.
- It is possible to turn £5k into £30k relatively quickly by spreadbetting currency futures. However, it is also possible to quickly turn £100 into £1m by buying premium bonds. Rather than focus on what "can" be done, your friend needs to focus on what is "likely" to happen. If he does that he should find that whilst turning £5k into £30k is certainly possible, the chances of it happening are remote and the chances of losing the £5k far more likely.
- Futures trading is a zero sum game. At any point in time long positions exactly match short positions and all futures trading results in an aggregate loss to futures traders as futures traders pay brokers/the exchange to take part in the game. In other words, the average futures trader loses money. This is quite different from securities (e.g shares and bonds) trading, where the aggregate of all traders can make money from company profits (or interest in the case of bonds).
- Many spread betting/binary option companies are happy to supply low cost or even free technical analysis software to people for 2 reasons 1) The virtually guaranteed transfer of cash from futures traders (successful or not) to brokers and 2) To bring more "Patsies" to the table.
- Instead of asking you to disprove the formulae, ask your friend why he does not consider himself to be the Patsy?

If you want to post the formulae up somewhere I may be able to pour some scorn.

These guys can be very believable.

They will have an answer to why they run courses rather than, or as well as, trading. Tax reasons, spreading the word etc.

They will often stress the importance of patience, accepting some losing trades etc. Making a few % per month is a more common claim than turning small amounts into a million. The 'get rich quick' scams are easiest to avoid but the smarter scams are more subtle.

The thing to remember when dissuading someone is that you are fighting against the strong desire to want to believe that it's possible to get rich from trading. Give up day job, have all the things riches bring and so on.

Furthermore it's very difficult to theoretically debunk the system/software even if you can understand it. Think about how difficult it is to debunk technical analysis.

And there will be some winners. People who, either through luck or skill, have actually made serious money from trading.

I don't know of any sure fire way to stop someone going down this path if they've set their mind on it but a couple of thoughts;

1. Offer the alternative get rich slowly plan through sensible investing. Show how you did it and stress fundamentals of investing, diversification, time in the market, minimisation of costs/tax and the power of compounding. Basically demonstrate that it is possible to become financially independent on even an average salary by sticking to a good long-term investment strategy.

2. Get them to ask the course manager to provide independently audited broker accounts of the trading of successful clients. Make sure the auditors are well known and have a reputation to uphold.

3. It's already been mentioned that Forex is a zero sum game. Show that in fact it is negative sum thanks to trading costs. The more you trade the more certain it is that you will lose thanks to these costs.

But recognise it's often difficult to dissuade a young person from the lure of riches!

BoE