A few years ago I saw an investment ad making unbelievable claims. It was a woman in a black hat trying to get subscribers for her dividend newsletter. For a couple of minutes I wondered how she could possibly make those outrageous claims since she was affiliated with a high-profile investment site. Then I realized how the truth could still be a lie. Let me give you a similar mocked-up example.
Man in Black Hat Defensive Stock Picks
- Only S&P 500 super-liquid stocks recommended – no penny stocks!
- Closed trades average 115% return
- Average trade length is 12 months
- Win ratio is 100%
What if I had a reputable third-party verify that all my above statements were true? Would you let the man in black handle your capital? You shouldn’t.
This amazing stock picking system is still a total sham. This was all I did:
- At the beginning of the year I recommend all S&P 500 stocks
- At the end of the year I recommend closing positions that are up at least 100%
The key here is that I only talk about closed trades. As these are just recommendations, I leave my losing recommendations open. Imagine how terrible this is. If I recommend 10 stocks and 9 lose virtually all value and one stock doubles in value – you lose 80% of your portfolio worth. Horrible! So you sell your winning stock and that is your only closed trade. Now it looks amazing! Your closed trade averages 100% return. The win ratio is based on closed trades – so we are batting 100%. We are winners…except we are not.
When you are looking for investing tactics that work, be skeptical. It is altogether possible to dress the truth up into something that is very technically not a lie although completely misleading in every possible way. Like a ‘Man-Eating Chicken’. You would expect this.
But you actually get this.
Yes, technically it was the truth. But purposely misleading someone is still a lie in my books. Be vigilant.