New age Gold Diggers

In the mid 18th Century, California experienced what is now known as the California Gold Rush. People converged from near and far to try and get rich quick. While the initial diggers made some money, the late arrivals barely eked out a living, let alone get rich. A allegory that is used to describe those who made money says that those who sold Shovels made more money that those who actually dug for the Gold.

While the stock markets aren’t a place for the easy money kind, it does attract investors who hope to make a killing buying stocks that are peddled by advisers with the promise of it being the next big thing. Investors subscribe to websites that claim to tell you what big investors are Buying / Selling and how by just following them, you too can make a fortune.

When mid and small caps were booming, we had big fund managers come on TV claiming to have bought what they claimed was stocks which were very under valued and were ripe for a revaluation. Momentum sellers showcased how their portfolio’s were able to buy only the best of the lot and profit from the rally we were seeing.

Its amusing (though having fallen myself more than once into such traps) as to how we believe that the experts who come on TV are there to educate the public rather than trying to ensure growth of their own services. Fund mangers have found TV to be the best medium to broadcast their views and become popular and more the popularity, higher their assets under management.

Advisers come on TV in the hope that you not just hear their views, but visit their website and subscribe to their products – products designed to make you a better investor / trader / Macro Analyst or whomever you want to be. The idea is that all you need to do is pay a few shillings and glorious days are here.

Of course given the fact that failure rate in markets are so high, most experience disappointment about losing more money than they bargained for and try to exit as quickly as possible. But the world being a large place, that place is occupied by the next sucker hoping to not do the wrongs did by the one who lost. But guess what, probability is that he too ends up in the same place as the earlier – maybe in a different way.

I have had the good fortune of being able to meet / interact / learn from quite a number of guys and guess what, none of these have anytime to run subscription services, let alone spend majority of the time shuttling between various television channels giving gyan to one and all.

These days, everything is for sale but none come without any assurance of profit. Tip sellers want you to risk real money first to pay them and next to invest on those stocks that they recommend. But ask about reversing the process and they want some sort of guarantee that you shall pay if it works.

At least in the Mutual fund space this seems to be changing with the arrival of new age distributors who provide you with the ability invest directly and who are willing to get paid for their advise only if they beat predetermined benchmarks. While we still do not have websites like Collective2, I do hope that we shall see something of that nature in a matter of time as investors and traders want more than just assurances of the stock picker really knowing his stuff.

But till that time happens, you are better off taking every claim with a bag of Salt and spend your hard earned money on things that are worthwhile (Books for instance) than fall prey to buying the latest shovels from the friendly guy next door.