My INVESTools Saga Continues

I continue to receive a flurry of comments and emails regarding the INVESTools, Inc. posts (original and follow-up).

I wanted to make some important clarifications:

1) I am not actually recommending a naked short position on SWIM. You’ll note from the opening statement and the parenthetical note in the article that I personally never short stocks. It’s risky business, and my regular readers are aware, and my new visitors should know, that I never really advise it. It was largely for “effect” in the post, and I should have made that clearer from the start. My apologies.

2) I am not claiming that INVESTools is necessarily a scam. In fact, I make the assumption in the post that it isn’t a scam, and try to argue that a “proven formula” still couldn’t sustain itself for long. Very few people have really responded to this argument. Furthermore, the main take-away point from the discussion should be this: Either the company’s educational programs are a ripoff (since no program could actually fulfill the promises made in that infomercial) OR the company is using questionable marketing tactics. So one way or the other, the company is doing something wrong.

3) I am not calling into question the ethical fiber of the company’s management. Lee Barba and Tom Sosnoff have both posted responses on the comments section that deserve to be read and heard clearly. I do not, and you should not, victimize them or call into question their standing as reputable businessmen.

4) The post nowhere mentions that the ThinkorSwim platform is a scam or ripoff. My arguments are referring to INVESTools educational programs, not TOS.

So, what would it take to really prove that INVESTools is worth it? What do I need to see, to eat, crow and concede?

I’ve gotten responses from a number of folks who say they have not done so well with INVESTools. Others have said they do remarkably well with INVESTools. My hat goes off to them. One common theme amongst these folks is (not surprisingly) that much of their success is due to hard work and dedication. Several readers have, therefore, likened INVESTools to a college education — you get what you put in, it doesn’t guarantee success but helps, etc. I’ve already mentioned that I find this analogy misguided.

Earning a degree from an accredited University is an important and rewarding life experience, that any return on investment cannot fully capture. You grow, you learn, you experience, and many don’t even pay the tuition just to earn a bigger paycheck. Nonetheless, at the end, you at least have something (a degree) that makes you statistically more competitive in the job market (just look at any regression on wages and college education). So in that sense, at least college has data backing up its efficacy.

Some have gone further and used my own school, Yale, as a comparison. Yale, in particular, does have data about its average student that I took from a friend who works in the development office, which is quite impressive and from a purely monetary standpoint (which I think is a foolish way to evaluate a university, but that’s neither here nor there), it appears to be well worth the tuition: the average graduate from Yale 20 years out of graduation makes enough to put it in the top 1% of American households — so the average Yale grad can expect to be in the 1% income bracket by the time he or she is 42.

Here’s the honest to God catch, though. Even this doesn’t say much because correlation does not imply causation. Are students who go to Yale more likely to be successful because of Yale, or because of themselves? Is there a text-book self-selection bias? That’s a similar dilemma to INVESTools. The only difference is that INVESTools can do a controlled study to prove causation! A university, for practical and ethical reasons, can’t (and probably shouldn’t).

So for me to be convinced of INVESTools’ value, I would need to see two things:

1) The average/median graduate (who uses the system the right way) beating the market over time.
2) A controlled study showing that students' performance improved because of INVESTools (that is, that they would not have done as well on their own).

You should note that it is not enough just to say that the average student makes money or that INVESTools leads students to perform better than they otherwise would have, if this still means they underperform the market. The average graduate needs to beat the market net of all INVESTools fees and tuitions for the program to be worth it. Otherwise, INVESTools adds little value for the typical student, since most would be better off simply dropping money into an index fund, saving time, cash, and headaches.

It is also necessary to demonstrate these results over time. Otherwise, results may simply be a “fluke” and/or the “proven systems” may not be sustainable through time (that is, they’re just “quick profits”). It is also not sufficient to say “well, some people make a lot, so that justifies it.” There can be aberrations in a sample size of 250,000+ graduates, and on the tails of any normal curve will be highly successful investors. What matters is the mean and the median over time, net of fees, and because of INVESTools.

Thus, I’ll extend a second challenge to the company (in addition to the first to allow me to try the product for myself, which has not been taken): Show me the results of an independent, controlled study that indicates your students perform statistically significantly better than the market AND do better than they otherwise would have.

I’ll then proceed to extol the glories of INVESTools and shut up.

Comments

[Chungst:]

I'll bite. Joe needs to open his mind and try to discern SWIM given the Gillette or HP model, which is another bona fide means of validating SWIM's franchise. Also, I like to know why Joe never calculated the intrinsic value for SWIM, i.e. the amount of money it would take to replicate SWIM today. It would be nice to compare Joe's intrinsic value (along with supporting work) to the current market value of SWIM.

Since Joe is the critic of SWIM, the burden of proof lies with him, not SWIM.

2007 Dec 10 05:42 PM

[biofest:]

Interesting debate but I was going to say waste of time.
However listening to Tom Sarnoff talking about 1987 crash was very amusing. Thank you Joe for directing me to such entertainment. By the way I disagree with Chungst I do not think the burden of proof lies with you. You raise questions which require answers rather than insults.

2008 Apr 30 05:25 AM

[Rambyte:]

Mr. Citarella's post is not insignificant and should be accorded its due. Anyone tempting others to enter the investment realm deserve excessive scrutiny. As in the Gold Rush of the 1890s, these folks end up selling picks and shovels to the miners. They really don't care if you find gold or go bust. And their Corporation and their attorneys are prepared either way.

I am neither condoning nor commending SWIM. They saw a need and they are attempting to meet it. Their Financial Statements are impeccable. And it looks as if they have, to date, no material litigation frustrating their mission.

Since Mr. Greenspan's Irrational Exuberance Speech of 1996, a majority of the Baby Boomers have been attempting to recapture the value in their Retirement Portfolios.

It is clear that SWIM can facilitate this. At the end of the day, it depends on the Student rather than the Teacher. And this is the role of SWIM. True: They earn 70 percent of their revenue from Brokerage Activity. Still, this was shrewd on their part. The other 30 percent of their revenue comes from Education.

Let's face it: InvesTools is an Education and Brokerage company. Maybe this is where Charles Schwab wants to go? The bottom line is that your success depends what you do with your education rather than the skills of the educator.

Mr. Citarrella correctly posits that the direct success of InvesTools students portfolio should be highly correlated to their training they paid for from InvesTools. This metric is not transparent enough. And the Company would do well by posting an aggregated performance of all of its actively trading Students.

We all know it will not be as stellar as the performance posted by the Oracle of Omaha over the past 40-year period. But, to be fair, shouldn't we also compare the annual return of those students of all the major MBA schools in the nation. After all, isn't this their intended objective as well?

2008 Nov 23 03:17 PM

[Rambyte:]

Extended & Revised Remarks:

Mr. Citarella's post is not insignificant and should be accorded its due. Anyone tempting others to enter the investment realm deserve excessive scrutiny. As in the Gold Rush of the 1890s, these folks end up selling picks and shovels to the miners. They really don't care if you find gold or go bust. And their Corporation and their attorneys are prepared either way.

I am neither condoning nor commending SWIM. They saw a need and they are attempting to meet it. Their Financial Statements are impeccable. And it looks as if they have, to date, no material litigation frustrating their mission. Since Mr. Greenspan's Irrational Exuberance Speech of 1996, a majority of the Baby Boomers have been attempting to recapture the value in their Retirement Portfolios.

It appears to me that SWIM is facilitating this. Around 70 percent of their revenue comes from Brokerage Activity. The remainder comes from Educational Activities. In my opinion, this was shrewd. If you want people -- especially Baby Boomers -- to utilize your Brokerage Service, give them specific opportunities and train them how to use it.

Assuming the training is adequate, and it appears to be so, results depend on the Student, not the Teacher. Let's face it: InvesTools is an Education and Brokerage company. Maybe this is where Charles Schwab, TD Ameritrade and the others want to go? The bottom line is that your success depends what you do with your education rather than the skills of the educator.

Mr. Citarrella correctly posits that the direct success of InvesTools students portfolio should be highly correlated to the training they paid for from InvesTools. This metric should be more transparent. And the Company would do well by posting an aggregated performance of all of its actively trading Students.

Still, those of us approaching this endeavor at arms length aspire to match the stellar performance posted by the Oracle of Omaha over the past 40-year period. But, to be fair, shouldn't we also compare the annual return of those students of all the major MBA schools in the nation. After all, isn't this their intended objective as well?

I suspect the InvesTools experience and resulting student performance can be charted on a Normal Bell Curve. Some 17% will have a negative, losing experience with InvesTools. This group is 1-Standard-Deviation or more below the Mean. Another 17% will have incredibly stellar results. This group is 1-Standard-Deviation or more above the Mean. The remaining 66% are those in the middle who will experience mediocre results.

Where could InvesTools really help? What does it take to be in the right-wing of that Normal Bell Curve? What does it take for my results to to exceed 83% of the others paying for the InvesTools experience?

Roger Brown,
Scottsdale, AZ

2008 Nov 23 05:27 PM