Recently we finished making a circuit of “Financial Forums” in Ottawa, Calgary and Toronto. These events offer a wonderful opportunity for individuals to participate in what founder Steven Kizell calls the “University of Money.” A vast array of speakers covers topics as diverse as mutual funds, estate planning, technology, offshore banking and neuro-semantics. When not attending seminars, people can visit exhibitors from banks, brokers and mutual funds. Intertwined among the major corporations are some tiny outfits trying to build name awareness and perhaps boost their stock price. We’re the guys with the miniature booth, flogging our investment letter and books, and offering insight into our methodology and any other investments passers-by wish to chat about.
One of the forums’ major benefits for us is that we see what is hot, and what is not. Last year dot-com outfits were the rage. This year, they were little more than a blemish among the booths. Oil and gas, virtually non-existent the past couple of outings, reappeared — not a surprise given the resurgence of this sector. Mutual funds are normally omnipresent, but this time around they were in short supply. It is as if the economic cycle is paraded under one roof.
The most eye-catching booth for us this year was the one put together by the folks at Indigo Investment Software, where they were peddling a program that tells people to “Know which stocks to buy, sell or hold . . . right now!” The primary attraction was the disclaimer on the front of their booth, which was perhaps the longest we had ever seen in our 20-plus years in this field.
Being the guys we are, a disclaimer that grandiose attracted us to their presentation. Three times. And they were royal events. Some of our favourite lines were, “If I’ve been making 200 percent the past two years and you make 12 percent, who is smarter in the process?” Well, that was an easy one for us. Another beauty was, “Who would like to be in the market 24 percent of the time and make 100 percent on their money?” We would, naturally. This was spicy stuff.
Dean Albert, chief executive officer of Indigo Investment Software, was frank: “The program is based on computer-simulated hypothetical results.” He also mentioned that Indigo was testing six live internal accounts, and two had achieved returns in excess of 100 percent. Stats on the other four were not made available to us.
Part of the program’s appeal is that, if used correctly, money is made whether a stock is going up or down. Take Research In Motion, for example, a stock that the presenter talked about at length. In the 45 transactions outlined, the return was 896 percent compounded. Quite frankly, we have no idea whether this included transaction fees, but at this level, who really cares? And heck, with returns like this, the $3,995 (US) sticker price had “bargain basement” written all over it. Wait: buy it today and it’s only $5,973 (Canadian). Somehow this was explained as saving $1,500 and we didn’t quite get it, but why quibble.
As outlined by the disclaimer, the system is predicated strictly on “back-testing.” While the art of testing models with historical data has an extensive academic pedigree, unfortunately, history does not repeat itself, at least not exactly, and institutions that have tried the “black-box” approach have a woeful record of spectacular blow-ups. All of this brings to mind one of the Contra investment rules: If it sounds too good to be true, perhaps it is. Now, we are not saying that this isn’t the greatest software package since sliced bread. Heck, it could be. But as much as we liked hearing the little bell ding with every sale, our short arms kept our wallets in our pockets. Perhaps another mistake by the Contra Guys, on our long path to retirement.