This post is a behind the scene compendium of my first (?!?) guest post on BankerOnWheels.com; or…whatever did not make the cut there but I did not want to throw it away (I wrote it while on holiday so it would have been double the waste). You can definitely read that post as a stand-alone piece but, since you are here, is better if you go there once you are finished.
I should use writing to vent more often. Or hit the gym just after I see something that triggers me, those are usually the best sessions I have.
Instead, I either enter into a thought loop when I am alone or dump my frustration on my wife, who usually reminds me she doesn’t have a clue about what I am talking about. Like that Breaking Bad meme.
In the last three months, I lived alone in Zurich working and setting up the apartment, joining the rest of the family only during weekends. Meaning in the spare time I had left, I couldn’t watch any series worth watching to not breach the sacred pact with my special one.
So I often found myself doing some “market research” about other creators in the finance space. When it works, I enjoy myself while learning and, if I am lucky, I find new…contacts? acquaintances? friends? Unfortunately, that’s more the exception than the rule. There’s a dark world out there.
Not a long time ago, I wrote about my disbelief at how many funds with uber-high fees still exist; today, it is about charlatans that claim to generate uber-high trading returns (from 50%/year to the moon) and want to share their secrets with you…at a very exceptional price that is valid only until tomorrow.
The prompt was an Italian video but the message, as the techniques used to lure victims, is universal. I like the idea of starting from this video because, at a certain point, the interviewer submits the charlatan the typical hard questions that are raised to challenge charlatans.
I want to add my replies to his replies. Even if I know that is pointless (remember? I need to vent). This whole thing evoked in my mind when Joe Rogan offered to organise a debate between Robert F Kennedy and Fauci about vaccines. Science cannot be debated. Or, as Prof Galloway rightly put it, the debate happened between the group that took the vaccine and the control group who took sugar and water (cannot write homoeopathy because my wife is a believer) and the vaccine won. That’s it.
Here it should be the same. Do you claim that in 2020 you did +200% in trading profits? Produce the evidence. That’s it. There is a ton of people out there that do it. Yes, there is also a ton that does not do it…but usually, they do not sell shit related to their alleged performance. That’s the key difference.
Charlatans are subjects to nature’s law, survival of the fittest, as well. A debate is useless because the charlatans we see, you and me, are the ones that already passed all the tests. That’s their skill. Not to generate trading profit, but to perform the sleight of hand that they are capable of doing it. Debating is definitely not my skill. Go and watch my YT videos. But I can, or try to, bring facts to the table.
Like the fact that the guy managed to bring into the conversation all the scammer starter-pack: Kiyosaki, NLP, Forex and Macro. Check, check, check, check. I mean, when Rich Dad Poor Dad will become the personal finance Mein Kampf? I read it but I cannot confess it because otherwise I will be cancelled immediately? Isn’t it due?
Even the interviewer was a bit shocked when he mentioned it…and the way the charlatan recovered himself was a great example of his debating prowess (“You should not read only what is conforming to your beliefs” Sure mate).
I already spoke about the video interviewer in another post. I find it extremely sad that someone who managed to introduce to a big audience, at least judging the metrics I can see, a very important topic like personal finance is also prone to condone these shady behaviours.
Coaches
Why Serena Williams, the best tennis player ever, would need a coach to teach her how to play tennis at a later stage of her career? With her father on her side, she won the US Open, why would she need a different coach? Why did she accept to settle with a guy that did not even manage to be a tennis pro himself?
Even when it is not about their main craft, professionals now have coaches in many “satellite” areas, like nutrition or mental strength. In this case, it is definitely more intuitive to understand why someone would need this kind of help (you cannot become an expert in every field) to step up to the next level, but no one would ever have the counter-proof, the alternative universe where they worked with someone else, to judge if they made the right choice.
It is not easy, at least it was not for me, to understand the value of being coached. Competence aside, it is very hard to judge ourselves correctly, acknowledge progress and identify instances where we can push harder. One of the main characters in the series Billions is the hedge fund in-house therapist: I was so curious to see what type of role they would have, since in my mind I could not think of a type who could bring value to guys that are already at the top of their game. The episodes, and the interviews with the real person the character is based on, clarified a lot to me.
As in many areas, there is a big polarisation on the topic: some view coaching as a total waste of time and money, while others consider it essential to overcome limitations that are inherited in each of us.
Metrics
This clash exists because it is hard to provide objective metrics. We live one life, progress takes time while the feedback loop is full of noise.
This is the aspect that charlatans leverage the most. Take Technical Analysis and the guys at AllStarCharts.com. TA is voodoo for some and a useful trading/investing ingredient for others. Charts and patterns cannot be the end all be all otherwise they would have already been arb-ed away for a long time. They provide context…to people that find that context useful.
I started to follow J.C. Parets, the person behind ASC, almost 10 years ago. He shows you a chart and tells you his view. He indicates at which price he’s a buyer and where his stop-loss is. And that’s it: if you like what you see, you can buy whatever he sells (I guess a newsletter) and have more. He never, ever, mentioned his profits (or losses) as marketing material. What you do is up to you. He loves what he does but he does it for money, he is very transparent about it. This is logical to me but apparently…not for many charlatans.
The first charlatan excuse when you ask them about their P&L is “That’s beside the point, I love what I do and I would do it regardless”. That’s BS with capital B and capital S. It is true, you cannot do it ONLY for the money. But beating others, AND making money along the way, is the reason why we(?) do it. You can be extremely good and extremely intelligent and still lose against the benchmark. That’s fine for a lot of investors and traders. That starts to be less fine if that transparency is a detriment to your main goal, i.e. when you are selling something (and not solving the financial market challenge).
Clients buy JC Parents’ stuff because of what he says, not because of the performances he promises (again, I never bought anything on ASC, I am saying this based on what I get from his appearances on podcasts). I can publish TheItalianLeatherSofa model portfolio because I do not care if it beats a benchmark or not: to me, that’s the best way to build a resilient portfolio but I have nothing to sell. If someone stops reading because of the model’s lousy performance, I am fine. I wrote about what I think works and doesn’t in p2p lending because that’s how I invest my money: I have good reviews and bad reviews, each with its own reasoning.
I am not here to make money OUT OF YOU but I am here to make money. And that money is functional to acquire more time to do what I like to do, which is not making more money just for the sake of it. Yes, there are some people like that, Warren Buffett is probably the best example, but you definitely do not find them on bloody YouTube. Maybe on Twitter, sometimes. For sure, they do not sell courses or newsletters or any other s^%t. Take Bill Gross: he did it for the fame and was pretty open about it. When his performance started to be bad, he didn’t hide behind a Family Office and started to teach how to trade bonds for a fee.
You cannot casually mention your p&l and then not fully substantiate it (more on that later). You cannot say that p&l is not relevant if you live out of eyeballs on your stock analyses. Since I started to work, every month I had to produce reports, qualitative and quantitative, on what I was doing; never found a colleague who found this part of the job enjoyable. And yet we do it: might not be the most efficient way, but it is the only one to progress. You can’t manage what you can’t measure.
Otherwise, you do entertainment. Which is fine and it is definitely measured in different terms than p&l. But then call yourself accordingly. That’s the biggest misconception around Jim Cramer: he was a hedge fund manager but he is an entertainer now.
If you shop for a financial advisor asking “What’s your Sharpe ratio?”, the blame is on you. But if you are a financial advisor and part of your marketing strategy is, subtly or not, hinting at your above-average returns, then the minimum you can do is provide a reliable audit of those alleged performances.
We all wear many hats nowadays. The charlatan trick is to change hat based on the question they have to reply to. “I trade just for myself” and yet that trading activity is conveniently placed in the open next to the stuff they sell. Convincing others that you are a coach worth their price is hard. Bringing measurable evidence of your value is one of the best marketing techniques; it’s up to you to take that route, but if you do, do not be surprised if someone asks for proof.
The Innovation
But back to the video.
The main concept that works against charlatans is compounding. If you generate 100% returns year in and year out, it doesn’t take long before you become the richest man in the world. And none of them is, therefore their performance must be fake. Compounding is a bitch because even un-flashy performances lead to spectacular results over a long period of time…and successful charlatans tend to stick around for decades. How do you solve this issue?
Our video’s hero ‘found’ the solution (or copied it from another charlatan, I am not that into the culture): he never compounds. His trading capital is 70k to 100k and at the end of each year, he moves the profits to an “investment portfolio” (I didn’t research the lore of this charlatan but it seems that this portfolio is invested in value stocks).
I cannot tell you if I was more shocked by him telling this BS or by the fact that the interviewer ate it as I do with my tiramisu: no questions asked.
His point is that his trading strategy would become “too risky”, the monetary swings too high and he “would have any way to tone the strategy down and end up with the same amount of gains” if he would increase the trading amount. Do I even have to say that losing 100k feels different if you have 100k or 100 million? Maybe you do not want to compound everything but…a part of it?
Statistically speaking, you should expect the stock market to experience a 10% drawdown every year. So let’s say the charlatan is afraid to be in the hole by 60k (cannot be more than that cause his minimum trading capital is 70k); I am referring to paper losses, not permanent ones because he’s afraid of swings…plus he cannot really say that his strategy incinerates 90%+ of his capital at any point (as a permanent loss) otherwise no person, even the more gullible one, would buy his advice. This means our hero can never invest more than 600k in stocks, ever in his life. Sounds…realistic?
But here comes the really funny part. If you watch the videos where he comments on his trading performance, his trading strategy is LESS risky than the stock market! He never has a losing year and drawdowns last at max for a few months. Stocks can be down for bloody decades. His strategy not only trunches stocks in returns but also in risk-adjusted returns. If he had any knowledge of risk management, he should move out of stocks and into his strategy, not the other way around!
If running this strategy would be physically and mentally demanding for him, you know staying in front of a screen for most of the day and night requiring utmost attention, he would maximise the effort using as much capital as he could. The “unit of stress” is either fixed (hours spent) or relative to his net worth but in both cases, a rational person would leverage the endeavour as much as one could.
Once I had a colleague, working in marketing, whose husband was a trader in a hedge fund: she had to download the Bloomberg app to monitor his positions in real-time to better manage his stress. She even started to learn about Central Bank meetings and shit. There is no doubt stress is part of the deal. That’s why anyone would maximise the returns per unit of stress spent.
Changing the time frame of your strategy is only going to change the stress pattern, not the overall amount of stress. Trading intraday means peaks of stress during trading hours but also evenings and weekends stress-free. I have been there, I worked on the FX desk for a bank where every evening we were flat. I also managed bond portfolios during the GFC, the Euro crisis, Covid etc. The only thing that changes is the moments when you are stressed vs when you are on the clouds.
I stop here because, in the end, every way you turn it, what the charlatan says makes no sense. Sorry, it makes sense if those performances are fake.
The Questions
As I said in the intro, this was a sort of (looooong) introduction to my guest post on BankerOnWheels. Go check it out. Bonus points if you recognise who is the Andrea mentioned there 🙂
What I am reading now:
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