Editor's note: The "mailbag" is one of the most popular features of our free S&A Digest daily e-letter. It's where we publish reader questions, rants, accusations, and the occasional flattery. Today's essay, originally published in the June 19 edition of The Digest, is a response to one such accusation. For the "Real Scam Artists," by Porter Stansberry, read on...
The Real Scam Artists
Originally published in the June 19 edition of The S&A Digest
|In your recent free mailing, you guys say that you are in the business of selling newsletters. Shouldn't it be that you are in the business of disseminating extremely useful information to the investing public, and thereby selling newsletters as a result? I think you should take a long hard look at your business mindset. I think you guys are a fraud.
– Paid-up subscriber Geb Rault
People throw that word around a lot – and it has certainly been sent in my direction over the years. My best definition for fraud is manipulating people using an artifice (a lie) to receive benefits that you don't deserve.
I would suggest to you that most mainstream financial services companies are frauds. They charge you a percent of your assets to provide you a pitifully low level of service. Other options, like hedge funds, are even worse. There, you pay a percentage of your assets... plus a percentage of your profits. The financial service provider, meanwhile, lives off your capital without taking any risk. In my view, these people are manipulating the public by playing toward their greed, then charging huge amounts of money in a way that's mostly invisible to the consumer.
For example, mutual funds advertise by showing their track records over the last several years – typically over the last 10 years. Any fund that's done well will attract billions more assets. The asset manager will get rich... But as everyone knows, it's nearly impossible to maintain a high rate of return when you're managing a huge pile of money. The asset management company knows full well that it can't deliver anything like historical rates of performance when it is managing $10 billion compared to when it was managing $500 million... Nevertheless, it advertises that track record as much as they can. It also pays "commissions" – otherwise known as "kickbacks" – to any broker who can pile still more money into the fund.
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So... let's say you're one of the poor suckers who puts his $100,000 into a fund like this. Independent studies of actual mutual-fund performance show that investors make about 5% a year in funds, on average (which is far less than you'd make in bonds, never mind value stocks). But... let's assume you pick a "good" fund. There, you will probably earn 7.5% a year. In 15 years, your account will be worth $275,000, and you'll think you've done great. Meanwhile, the fund company will have earned $32,647 – without taking any risk while delivering mediocre performance. Best of all (for the fund company), you never see a $32,000 bill for its services, so you hardly notice it's fleecing you.
What we do, on the other hand, is show people investment ideas that demonstrate the value of our independent research. Sure, we have to doll up the ideas the first time you see them. We know that before you buy something with your hard-earned dollars, you've got to get excited. And for you to notice our ideas in the sea of media, we've got to grab your attention. But then... assuming you buy... we do something unlike almost all other businesses. We offer you all of your money back after you've had time to evaluate our service and our products. If we don't live up to the promises made in our marketing, you can get every penny back. Try asking your broker for your commissions back. Try asking your mutual fund for your asset fees back. Try sending back anything after you've used it for a month.
You can think whatever you'd like about our business, our marketing, and our products. But certainly no reasonable person could conclude we're trying to defraud anyone. In fact, we know a consistent percentage of our customers will routinely "test drive" all of our products, get all of our information, and then demand a refund. That's fraud.
P.S. The S&A Digest is a daily e-letter from the desk of Porter Stansberry, the founding publisher of Stansberry & Associates Investment Research. The Digest comes free with a paid subscription to any one of Stansberry Research's publications.
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