If you don’t have YouTube premium, there’s a chance you’ve seen your 4,954th YouTube ad about investing, trading, and earning passive income.
(Yes, we’re tired of them too.)
The dream they sell is simple: Pay some fees. Learn to invest. Become a full-time investor.
But there’s more than meets the eye.
While there are many investing courses that teach sound principles and educate people responsibly, there are also plenty of questionable characters you should steer clear from.
Let us be clear: We write this not to discourage you from attending investing courses, or reading up about investing.
We just want you to understand some of the nuances at play, especially when it comes to bold and persuasive claims made by some of these investing/trading courses.
The following factors can potentially save you a whole lot of money and time.
Here’s what you should watch out for:
Are they selling a ‘tried and tested’ system/method/formula?
One common aspect of wealth-guru marketing is the idea of a secret system/framework that will get you huge profits.
The idea is simple:
If you take a series of actions, you will be rewarded with predictable, comforting outcomes.
I suspect Singaporeans are particularly vulnerable to this because we’re used to having ‘model answers’ in school.
‘Model answers’ may work for tests and exam papers, but it’s a different game when it comes to something as complex, irrational and volatile as the stock market.
The best a mentor can do for you is to offer you a set of guiding principles to analyse an investment; if anyone claims guaranteed results, we’d say stay far, far away.
After all, The stock market is… Well, a market. Markets adjust, and if there was a guaranteed way to make money, everyone would start using it, and the market will adjust so that these over-powered systems don’t just completely take over.
The main reason why this will happen is that the stock market is a zero-sum game, meaning someone has to lose for you to win.
No individual/company/economy will allow themselves to consistently lose to magic systems, so even if there was such a thing, it’ll be fixed/adjusted really really quickly; and it would not be a good long-term strategy.
Therefore, if someone found a guaranteed way to profit, they would keep it quiet and make as much as they can from it. They certainly wouldn’t teach it to others for a few thousand bucks.
After all, if they really had a system that allows them to beat the market consistently, it would be far more profitable for them to keep the secret to themselves, rather than teaching it to you.
Are their ‘proven results’ cherry-picked?
One of the most common counter-arguments we see when we try to dissuade our friends and readers from signing up for these courses is proof of how the guru is realising huge profits from their trades over the week.
These are typically screenshots or photos of their trade results with some information blacked out.
We get it. Single trades are impressive to behold. What you may not understand as a beginner is that singular trades don’t really say much at all and usually don’t prove anything. This is because they could only be showing you the wins and not the losses:
A $10,000 profit over the week is a lot less impressive if they also realized a $10,000 loss.
Who are the courses marketed at?
We think how a course is marketed speaks volumes.
Many wealth and investing gurus use material wealth as a hook to get their audience. Think fast cars, fancy watches, and vacations in far-flung locations.
They promise life-changing returns within a short period of time.
While there is nothing inherently wrong with wanting the finer things in life, these types of ads have a tendency to attract people desperately looking for a quick path to wealth. Kinda like going from zero to hero, if you will.
Whether intentional or not, the impression given by these ads is that learning how to correctly pick stocks/trade can lead to a luxurious lifestyle within a short span of time.
However, what the ‘zero to hero’ folk often need, is not the knowledge of picking stocks, but really, getting the basics of personal finance settled first. This involves:
- Improving earning power, and hence investment capital
- Creating an emergency fund
- Paying off high-interest debt
- Reducing spending to live within their means
In our opinion, any self-respecting investing trainer knows this, and would have the decency to tell someone if an investing course is not what they need at the moment.
Marketing a $3000-$8,000 course with the full knowledge that their students have an incredibly slim chance of success seems like they’re more concerned about enriching themselves, rather than legitimately providing help.
We think that’s a major red flag.
Does it promise large passive incomes for relatively little effort?
Be very wary of ads that try to lure you with messages such as “earn $5,000 per month with just 2 hours each week!” Particularly so if they don’t state the capital required or the risk involved to earn those returns.
It is extremely unlikely that someone can consistently earn the median salary ($4,500 a month) consistently based on initial capital of $10,000.
However, $4,500 per month with a capital of $1,000,000 is a lot more doable.
An investment guru who’s already a multi-millionaire can easily claim to achieve this… and not be lying.
What’s the lesson here?
Don’t be impressed by large numbers, but instead, look for the percentage returns. For example, a $10,000 return is a lot less impressive if the guru had bought $1,000,000 worth of shares (that’s a 1% return).
Ask for their general performance in the market as a whole over a long period of time (at least 5-10 years). This will be a better indication of whether this person is worth learning from.
More importantly, do not assume investing can replace your income (unless you have heaps of money).
How did they get rich in the first place?
Hey, wait a second.
How did your investment guru become a multi-millionaire in the first place?
Many of them would like you to think that they became rich purely because of their investing prowess; but in reality, many of them actually got rich through non-magical, boring means, like good ol’ earning power.
Some gurus started businesses that earned them their first $100,000, $500,000 or even $1,000,000. Others are high-earners who have the ability to quit their jobs because they’ve saved up enough capital.
When it comes to being a full-time investor, being rich first helps a lot.
Having money means you can hold your positions when the market goes down. It means you have a safety net from which you can make high-risk, high-reward plays.
Of course, there are those who actually legitimately got rich through pure investing.
Many will say that they transit to selling courses because they want to share their knowledge and help other people make money.
This may be true, but a lot of them are also doing this to:
- Diversify their income streams
- Convert their resources and time into a more sustainable, stable source of income
- Drum up hype about the stocks they’ve bought, sending them higher
- Of which can be relayed into even more money to invest
Do you have the same investing synergy as them?
Finally, we’d like to introduce the concept of skill synergy.
The idea is this: Learning skills that have good synergy with your current work is an efficient way to increase your income.
For example: If I were in digital marketing it would make more sense for me to learn graphic design, as opposed to say, veterinary science.
The former would help me at work. The latter is useful no doubt, but it does not have as much synergy with my work.
Now, I’d like to consider your typical investing guru. As mentioned above, they generally have two sources of income:
- Teaching people how to invest
As you can see, investing is highly relevant to both. It makes perfect sense for investing gurus to put in the hours to analyse financial reports and monitor the market.
They are killing two birds with one stone!
However, consider someone else – they could be a marketing manager, security guard, a professional athlete, or a teacher.
Investing will still be important for these professions. However, putting in the same effort as an investing guru will not be as rewarding because it lacks synergy with their main jobs.
Investing is important, but…
Is learning how to invest important? Yes. But to what degree varies for everyone.
A multimillionaire investing guru might choose to be a full-time investor and pick individual stocks. It makes sense for them. It might not make financial sense for you.
Here’s how I like to think about it:
Investing is like running.
I think most people will agree that running regularly is good for your body.
However, not everyone needs, nor should aspire to be a professional runner to stay healthy.
Asking everyone to be full-time investors is akin to telling everyone to be professional runners.
This is rubbish, because people have different talents, and they are often best served to do what they are good at.
So yes, Warren Buffet is good at investing.
But Lebron James is good at basketball.
Wong Kar-Wai is good at making movies.
Hajime Isayama is good at writing and drawing manga.
IU is good at being a Kpop Idol and actress.
The best investment you can make is often yourself. So, the real question to ask yourself now is this: What are you good at?
Stay woke, salaryman.
2 replies to “The problem with the dreams investment gurus sell”
…. Who is IU again?
The stock market is not a zero sum game because it trends upward over time. I can buy a stock, sell it for a gain, and the person who buys it from me can do exactly the same. No one needs to lose. Conversely, someone can buy stock in a company which then goes bankrupt. In that situation, everyone loses. Futures and options are zero sum.