Training Course & Subscription Scams
Introduction:
Individuals keen to learn to invest are quickly bombarded with targeted investing adverts. Unfortunately, among the most common are scam training courses and subscriptions. These are usually marketed in a way that claims to offer valuable trade secrets or strategies, promising quick wealth or successful investments upon purchasing the course or subscription.
The reason it doesn’t work:
Hypothetically, if an individual or entity had discovered or developed a strategy enabling them to earn extraordinary profits, their first objective would be to keep it secret to gain from the advantage. Sharing a valuable secret or strategy would lead to more people following the same strategy, creating competition for the same opportunities, which would impact market dynamics, and would result in the competitive advantage of the strategy being diminished or disappearing completely. Once you tell one person, it’s challenging to control who else they tell. Therefore, selling a strategy or secret through training courses or subscriptions would make it worthless quickly. The notion of selling valuable strategies or secrets through subscriptions or training courses is clearly a scam to anyone who applies logic.
Let’s give a simplified example:
Imagine an investor discovered that if a the stock of car companies falls by at least 3% in the first half of the day, it will recover to a better than a 3% drop by the end of the day.
If only this investor knows this strategy or secret they can wait and monitor the stock of car companies, and comfortably make the investment when a car company’s stock has fallen 3%.
However, if 1,000 people found out this strategy and are following it, the first buyers will try to get ahead and buy earlier, maybe at 2.5%. This buying demand may mean that the stock stops falling. The next buyers may start buying now pushing the price up a bit and preventing the fall from ever getting to 3% with the stock ending the day down 2.0%. Meanwhile, the original investor didn’t invest as it didn’t ever get to 3%.
The next time this happens, the investors that missed out last time now start investing when the stock is down 2.2%, with the stock finishing the day down 2.0%.
Eventually, people start investing with the stock close to being down 2.0%, and the advantage is now completely or almost completely gone because of the competition for the same opportunity by people following the same strategy.
The True Nature:
The true method of operation of these training course and subscription providers is simple – to bait people into purchasing textbook or useless information by making fraudulent claims about their success.
Their advertisements often follow a predictable script – flaunting opulence beside luxury cars, endorsing fabricated reviews, showcasing edited images or videos of inflated bank balances or trading accounts, projecting an air of relatability, and, of course, the promise of wealth. There are other manipulative sales tactics, but in essence, if you’re being sold secrets or strategies, it’s a scam.
If a person or entity truly develops a valuable investment strategy, they have a few options available. The first would be to keep it secret and use it to achieve returns in their personal accounts. They could also set up an investment firm or fund and earn fees from clients by managing their money using the strategies. Attempting to sell the strategy to an existing investment firm or fund is inherently difficult; you'd need to prove the strategy’s ability to have future success without accidentally revealing too much information. Even if that is managed, you’d then need to convince the purchaser you would not reveal the strategy to anyone else. Alternatively, you could offer to work for the investment firm and implement the strategy on their behalf. However, in that instance, it may make more sense to start your own company rather than work for another.
It should be noted that there are research firms that sell insights to investment firms, but these are insights, not investment strategies. They are usually sold for high fees exclusively to a single firm or commissioned by an investment firm in the first place.
The vulnerability of these scam victims:
To many, these comments are somewhat obvious. However, large numbers of people are still conned by these types of scams. A critical element at play is vulnerability. Vulnerability is not a static state; it fluctuates, and even those seemingly invulnerable can find themselves susceptible. This susceptibility takes diverse forms, and these scams prey on individuals during moments of heightened vulnerability.
The typical factors of vulnerability are below:
- Low Financial Literacy: Lack of knowledge or understanding of financial matters is the most obvious contributor to being vulnerable to scams.
- Health: Individuals with physical or mental health issues may be considered vulnerable.
- Life Events: Significant life events such as bereavement, job loss, or relationship breakdown can contribute to vulnerability.
- Resilience: Lack of financial resilience or the ability to withstand financial shocks may be a factor.
- Low Literacy or Numeracy Skills: Individuals with low literacy or numeracy skills may find it challenging to understand financial products and services.
- Low Income:Individuals with low income may be more susceptible to financial difficulties, and vulnerable to the promise of scams.
- Limited English Proficiency: People with limited proficiency in English may face challenges in understanding financial information.
- Caring Responsibilities: Those with caring responsibilities, such as for children or elderly relatives, may face additional financial pressures.
- Age: Older individuals may be considered more vulnerable, especially if they face age-related issues. Some younger individuals may also be more susceptible as they lack life experience.
- Social Exclusion: Individuals who are socially isolated may be more vulnerable, as they may lack a support network.
- Debt and Financial Difficulties: Individuals in debt or facing financial difficulties are often considered vulnerable.
As you navigate your financial education, recognise the importance that comes from understanding and addressing the multifaceted nature of vulnerability. By fostering financial literacy, one can guard against the deceptive scam training courses and subscription services.