Don’t Buy the Next Amazon

THIS STOCK COULD BE LIKE BUYING AMAZON IN 1997!  So reads the ad disguised as a headline on Yahoo Finance.  Here’s the thing: you don’t want to buy the next Amazon.

Clicking on the ad takes you to a wall of text.  The performance is stellar.  The method is so easy an idiot could do it.  Two idiots say as much in quoted testimonials.  This is a no-brainer.  Then comes the catch – just subscribe to the newsletter.

Disguising ads as news headlines is what finally pushed me off of Yahoo Finance.  I clicked the ad today (google took me to the site while looking for news on a company) because I’ve seen this same ad for years.  Either there’s a new Amazon every week or maybe, just maybe these guys are full of it.

Don’t Buy The Next Amazon

Amazon is up 43,000% (for real) since IPO.  Why wouldn’t you want to invest in a company that would have turned $100 into $43,000?  Because there’s no freaking way you (or I) would have held onto this stock long enough to see close to that gain.  Michael Batnick has a great write-up here on what kind of ride you would have had to endure to make it to the promised land with this stock.  The drawdowns would have been intolerable to just about anyone.

The ad mentioned three other stocks.  They had similar drawdowns of 80%, 40%, and 60% along with huge volatility.

The Kicker

You could have made money on all four of these stocks even you got spooked and sold early, but what would you have done with the proceeds?  The subscription service makes it sound like you’d have a list of high-flyers to choose from, but this is fantasy.  Your actual returns would trail the newsletter’s (un-audited!) returns, but you might not even know that if you didn’t have a reporting system beyond your brokerage account.  How do I know this?  I’ve seen it.

I had the opportunity to look at brokerage statements for a prospect whose broker was a genius.  Maybe we could help with some financial planning, but he thought it would be difficult for us to compete returns-wise.  It turned out that a month before his annual meeting with the client, the broker would buy the top performing 3 ETFs for the past 12 months.  This made him look really smart in the meeting (“Look how my picks did over the last year!”), but the client didn’t actually get these returns, more often participating in the downside as the sector or country reverted to mean.  The statement didn’t tell the client how he actually did over the year, only what he held now.  Needless to say, his actual returns were far less than he expected.

I’m not telling you anything you don’t already know.  If it looks too good to be true, it probably is.  It just really ticks me off how this ad was positioned (as a news source) and how slimy it was.  Never hesitate to ask for a second opinion on investment strategies.  Your first stop should be Google.  Chances are, someone out there has already checked it out and taken the time to write about it.  Your second stop should be a fiduciary who doesn’t get paid based off of selling you a subscription or making trades in your account.