You may be wondering how Wade Cook became so popular despite the obvious flaws in his advice (see the preceding post for the goods on Cook). He promoted his seminars through infomercials and other advertising, including radio ads on respected news stations. The high stock market returns of the 1990s brought greed back into fashion. (My experience has been that you see more of this greed near market tops than you do near market bottoms.)
The attorneys general of numerous states sued Cook’s company and sought millions of dollars in consumer refunds. The suits alleged that the company lied about its investment track record (not a big surprise — this company claimed that you’d make 300 percent per year in stocks!).
Cook’s company settled the blizzard of state and Federal Trade Commission (FTC) lawsuits against his firm by agreeing to accurately disclose its trading record in future promotions and give refunds to customers who were misled by past inflated return claims. (That didn’t stop Cook, however, from getting into more legal hot water — he’s currently serving a seven-year prison term for failing to pay millions in personal income taxes.)
According to a news report by Bloomberg News, Cook’s firm disclosed that it lost a whopping 89 percent of its own money trading during 2000, a year in which the stock market fared well. As Deb Bortner, director of the Washington State Securities Division and president of the North American Securities Administrators Association, observed, “Either Wade is unable to follow his own system, which he claims is simple to follow, or the system doesn’t work.”
Remember
Don’t assume that someone with something to sell, who is getting good press and running lots of ads, will take care of you. That “guru” may just be good at press relations and self-promotion. Certainly, talk shows and the media at large can and do provide useful information on a variety of topics, but bad eggs sometimes turn up. These bad eggs may not always smell bad upfront. In fact, they may hoodwink people for years before finally being exposed. Please review Part V for the details on resources you can trust and those that could cause you to go bust!
Pandering to advertisers
Thousands of publications and media outlets — newspapers, magazines, Web sites, radio, TV, and so on — dole out personal financial advice and perspectives. Although many of these “service providers” collect revenue from subscribers, virtually all are dependent — in some cases, fully dependent (especially the Internet, radio, and TV) — on advertising dollars. Although advertising is a necessary part of capitalism, advertisers can taint and, in some cases, dictate the content of what you read, listen to, and view.
Be sure to consider how dependent a publication or media outlet is on advertising. I find that “free” publications, radio, and TV are the ones that most often create conflicts of interest by pandering to advertisers. (All three derive all their revenue from advertising.)
Much of what’s on the Internet is advertiser-driven, as well. Many of the investing sites on the Internet offer advice about individual stocks. Interestingly, such sites derive much of their revenue from online brokerage firms seeking to recruit customers who are foolish enough to believe that selecting their own stocks is the best way to invest.
As you read various publications, watch TV, or listen to the radio, note how consumer-oriented these media are. Do you get the feeling that they’re looking out for your interests? For example, if lots of auto manufacturers advertise, does the media outlet ever tell you how to save money when shopping for a car or the importance of buying a car within your means? Or are they primarily creating an advertiser-friendly broadcast or publication?
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