Tuesday, August 4, 2009

Optionetics, Bettertrades, Investools - Why do they want to teach us how to trade?


It’s late, you can’t sleep, you are zapping around looking for something to watch, thinking about the bills, the boss, maybe having a drink or two trying to get sleepy and you land on an infomercial about how to make a living trading. The music is upbeat, attractive presenters, and best of all, it’s free. You just have to call and reserve your place at the no-cost two hour seminar on options, forex, commodities or equities trading.

It sounds too good to be true but we would really like it to be true. Live the lifestyle; it is always sunny, drinking coffee by your pool, playing with your computer. Something tells us it can’t be, but the two drinks and the horrors about tomorrow convince you to call and reserve you spot at the free seminar because seating is limited and there are only a few places left. Do you think anyone ever called one of those numbers and was told there were no places left?

One law of life that has few exceptions is that the bait for all cons is greed. So why do Investtools, Optionetics, Bettertrades, among others, tour the country, year round, giving free seminars on how to get rich on the stock market? You guessed it. The two hour seminar is a free two hour sales pitch for another seminar, which costs between $3,500 and $4,000. But the paid seminar will really teach you how to get rich on the stock market. Come on, what's another four grand to you when you will be living in Florida, sitting at the pool all day playing with your notebook?

And then, once you pay the 4K, you can certainly cough up another few grand for software, newsletters, and advanced training, right? For that lifestyle, you should be willing to pay much more. Because the $4,000 weekend is also a bit of a sales pitch.

Is anyone really surprised? Probably not, but we all, at some point or another, have fallen or almost fallen for the too good to be true. That girl, so sweet, but who set off all the alarms in your head. Or that guy, so smooth, so handsome, but who you knew was no more than a two day gig.

These firms are all very accomplished direct marketers, very metrics driven. They go to a city, do maybe six or eight two hours events in three or four venues across the area. They run direct response TV campaigns about a month before the events. These DR spots are sold very cheap, anywhere from $100 to $400 per forty-five minute slot. The cost of getting someone in the room is on the low end $150 in advertising spend, on the high end $450. They also use the internet, though these companies generally prefer traditional DR TV and  direct mail.

So the big question, if it costs on average $300 dollars in ad spend to get a butt in the room, how many butts buy? A 15% close is about average which equates to a cost of sale of $300/15%=$2,000. And let’s say the average price is $3,500. Now you can answer that other difficult question.  If it is so easy to make money on the stock market, why do they run around the country teaching people how to do it instead of just trading? Yes, that is a nice 75% return on investment. And these guys are in and out 2 months, from the first TV spots to last day of the paid seminar. Of course, that is gross margin, they have costs, crews, venues, commissions, travel expenses etc. But by the time they are done, they will milk another $1,500 out of the guy (majority are men) in the next 12 months. So we can safely say that operating margin is pretty close to 50%. What trader can do that consistently? None. That is why they teach.

And the big boys, Investtools, went and bought themselves a brokerage house, and that is really where the money is. The brokerage margins are even better then the education margins. I don’t know if the other education firms are getting kicked back something from the brokerages houses, but if they aren’t, they should be, because they are teaching people to trade options, forex etc., a gold mine for online brokerages.

What is the difference between an options brokerage and a casino? Any jackass can walk into a casino and lose his shirt, but not many people will go to OptionsXpress.com, open a six-pick, and burn through 10 grand in a few hours. Options and forex are intimidating; people need to learn how to trade before they wipe out a nice piece of savings with a trading account.

Of course, some will say that it works, if you follow all the rules etc. you can make some money trading. Maybe, but how many do? There is a very good chance that if the brokerage houses that feed off these education firms opened their books, and we could peak in and see how many accounts get completely wiped out within a year, it would be shocking.
 

A sexy woman walks into a party and eyes and attractive man, she unbuttons her shirt a bit, gives him the big look, and than approaches. ‘Hi, I’m really good in bed, want to come home with me?’ That is direct marketing.

An attractive man stands with a drink in his hand, calm, collected, waiting. A very attractive woman approaches, she says “Hi, I heard you’re great in bed, can I go home with you?’ That is the power of branding.


Beware of direct marketers; they might give you the clap.



Robet Bonomo is a blogger, novelist and esotericist.  Download his latest novel, Your Love Incomplete, for free here.

1 comment:

  1. Vastly more people make a living selling trading systems that don't work than make a living trading. Here's the harsh truth about trading: A trading system only works if very few people know about it. Otherwise, when a trading system says "buy", too many people would be buying at once and you couldn't get in at the right price. And when the trading system says "sell" too many people would be selling at once, you'll get out at too low a price and take a loss. So... those few people who have a successful trading system use it for themselves (or their hedge fund) and keep quiet about it. Those who have a trading system that doesn't work, or that used to work but doesn't anymore, sell their trading system.

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