The investment seminar index.
A study by the Association of Securities Administrators found that investment seminars billed as educational are better labeled as prospecting sessions. They say that 50% of this type of seminar contained misleading advertising claims, 23% involved unsuitable recommendations and 13% appeared to be fraudulent.
How many times have investors attended a seminar and then jumped on an investment bandwagon … alas too late? What if there was a predictive tool that could signal the end of an investment trend?
Introducing the Investment Seminar Index.
(Place tongue-in-cheek. Read on).
The basic hypothesis of the Seminar Index is that after an extended period of strong returns, that trends’ reversal is signaled by a broadly advertised seminar that touts strong past performance. It could be anything that has done very well. Any stock, bond, fund, region, country or sector.
Investors see this phenomenon with magazine covers. “Magazine cover stories tend to prominently feature a phenomenon after it has run its course. [The cover stories] thereby act as contrarian indicators” says Bloomberg. A good magazine cover turning point indicator is CEO of the year. Subsequent performance is nearly always abysmal. As with magazine covers, seminars are THE signal for investment trend reversals.
Signal strength is strongest when the seminar is sold via a trusted radio personality (a testimonial or an infomercial that sounds like an interview), when the lure is a free meal and when sponsored by a commission-based brokerage. Always there is a sense of urgency. ‘Don’t hesitate because this won’t last’. Sadly, the trend usually doesn’t.
The Seminar Index track record includes mid-1980’s Gold seminars, late 1990’s seminars promoting 79% Science and Technology fund returns, and of course the 2000’s Income Trust seminars (establishing new definitions for ‘income’ and ‘trust’).
Investors can be seduced by strong past returns. And Seminar organizers know this. Selling past performance works. Unfortunately, buying past performance seldom does. In part because good performance tends to revert to more average results. But, ooh the allure of getting rich quick.
Current Seminar Index signals include:
An August sports-radio ad offered a ‘Buy and sell stocks made easy with your own Investment Tools’ seminar. Immediately after Labour Day, the Canadian market dropped 7% in 72 hours.
An August news-talk radio ad offered an ‘Invest in US real estate for Canadian investors’ seminar. Two signals are flashing. The Canadian dollar will drop and US Real Estate will continue to weaken. Check and Check.
A poster on a telephone pole in downtown Vancouver offers ‘Get your real estate license in 5 weeks’ seminar. The Seminar Index predicts that now is a bad time to begin your real estate career.
Stay tuned. With predictions this accurate, the Seminar Index might make for a good seminar.
Originally published in the Business Thompson Okanagan news, October 2008.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Fund.