Exposing Financial Charlatans – The Youtube Trading Course Seller
Financial charlatans pose a significant threat. The danger is twofold: they undermine trust in legitimate financial education and practices, and may severely impact individual investors’ financial plans and life prospects.
It’s crucial to expose their practices and keep investors on alert. Today, Nicola from Theitalianleathersofa.com blog runs us through a fictive Q&A with a Youtube Trading Course Seller. It is loosely inspired by an Italian YouTube video he came across.
ABOUT THE ITALIAN LEATHER SOFA
- TheItalianleathersofa.com is a blog about personal finance and financial independence run by Nicola Protasoni.
- Over the past decade, Nicola held various Treasury roles in Switzerland and the U.K.
- Nicola optimised his casual social interactions by living and working in and (at) Zurich (Insurance).
- About him, they say – “A mentor” Jerome Kerviel, “Nicola discovered Brunello Cuccinelli before Chamath” Scott Galloway, “In the niche world of personal finance, he is not even the most famous Nick with an Italian surname” Barry Ritholtz, “Srsly?” Aswath Damodaran.
Here is the full analysis
The reason that 'guru' is such a popular word is because 'charlatan' is so hard to spell
In this article, Nicola skillfully tackles the misleading rhetoric often employed by Trading Course Sellers. Nicola poses questions that con artists typically evade. Let’s dive into their seemingly persuasive tactics and how they crumble under the scrutiny of an experienced investor.
Charlatan profile - Reach & Sophistication
reach
The YouTube Trading Course Seller has a reach in the tens, sometimes hundreds, of thousands, viewers. Some will fall for his tricks, but it’s not as widespread as a Madoff or FTX. However, it’s still more prevalent than a local financial scam. With YouTube, he has the dangerous potential to scale, up to a point where his content will hopefully be flagged.
Sophistication
The YouTube Trading Course Seller is somewhat sophisticated. Most society not familiar with investing literature may fall for his tricks. But a reasonable person probably won’t allocate her life savings to follow his trading strategies, so the harm is somewhat limited compared to more sophisticated schemes. Now, let’s jump into Nicola’s Q&A.
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Question 1: Why Don't You Join Goldman Sachs?
Charlatan: I would never accept to have a boss. Freedom has no price.
This is obviously a personal decision and there is no right/wrong reply. Let’s also set aside the fact that banks cannot do proprietary trading since the aftermath of the GFC, so the question should be “Why you do not go to work for a hedge fund”.
But we can still look at some facts.
Many great investment managers, and also some not that great, started in a bank or fund and then opened their own fund. Having a boss is something more transitory than perpetual. It is a way to get there.
It is the C.R.E.A.M. (“Cash Rules Everything Around Me”) industry. As long as your performance is good, no one will ever bother you about anything. Ever. With the charlatan’s performance and equity line, that should be a piece of cake. Bill Gross had to go insane before anyone in PIMCO started to complain. And they did so only when his performance tanked.
I know some people that started as employees and then went solo, i.e. trading for themselves with their personal capital. I still have to find one, just one, who did the reverse. Almost 30 years since I read about this stuff and a single example never came out? Not a proof of anything but yet…weird?
Even The World Cup Trading Championship website cites as the main benefit of winning…the chance to participate in their version of eToro? Would it not be great marketing material if you could say that some winner went to work for a big name?
Here’s a thought: getting hired takes two – just like dating Margot Robbie.
And let’s not forget, funds offer a tempting deal: you pocket the profits, they cover the losses. Sure, you could get fired, but isn’t that your starting point today, anyways? Plus, the opportunity to scale at zero risk is hard to ignore.
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In 2024, we Will be increasing coaching service prices.
Sometimes individual sessions are very helpful to get past your investing concerns. Our readers asked us to create a coaching service. And we’re proud to say, that some of them even ditched their Financial Advisors, after experiencing the value we provide. Some of the topics we recently discussed include:
- How much money do I need to retire with higher inflation?
- Medium Term or Long Term Bonds with today’s yields?
- Risks and Returns of Money Market Funds
- Asset Allocation for 10-15 year goals with narrowing returns between Equities & Bonds
- Merits of UK Trusts that invest in unlisted companies
- Traps with choosing brokers – PFOF & Risks of moving to another country
- International Situations – Choosing ETFs when leaving Europe
Question 2: Why Not publish your performance?
Charlatan: I do. But I'm humble. I don't only brag about profits. I show the mistakes I made.
Hold on, a YouTube video isn’t an audit by PWC or Deloitte.
The Charlatan presents on his Youtube channel some videos of an Interactive Brokers account.
What you see, what he decides to show you, is as important as what he decides not to show you. In short, you see him playing with the below graph:
The performance for each period is the only thing the viewer can see. The portfolio value and the net liquidity are both concealed.
At first, I thought about an old trick people participating in trading competitions used:
- With the competition account, they buy a very volatile position, a trade that can generate a big gain if the market goes in the right direction.
- On their private account, they cover that exposure by taking the opposite trade, so if things do not pan out, they do not lose everything.
Given that the charlatan trades around macro data like Nonfarm Payroll Report, the easiest way to show a good performance is to have two accounts, one long USD and the other short. Therefore, the need to hide the portfolio value part: you need many accounts and probably want to risk the lowest possible amount to run this show.
Then I thought it probably wouldn’t take much time to find a guy on Fiverr that can, starting from an Excel table with editable dates and performances, create a small script that replicates the IB graph.
Question 3: Why Not Audit your performance?
Charlatan: I can't afford the Big 4. But my broker does it.
Probably you are picturing me like this by now. The reality is that auditing is gruelling. I waste so much time every six months in my professional capacity to sit down with that year’s auditor to explain and provide documentation and show processes.
And guess what? Even with that process, you still get scandals like Wirecard, Luckin Coffee…FTX!
Earlier this year, Allianz was fined $6 billion because its US asset management unit committed securities fraud with a group of funds called Structured Alpha. If you want to do this auditing thing the right way, the process is really really really complicated.
Even if you show me a video where you type “Interactivebrokers.co.uk” in the browser and then login into your account, you can still fake it by being offline and pretending to connect to the real IB while you go on your own version.
YouTube is simply that, a stunt.
During the video, the charlatan also performs another sleight of hand: he says that his FX broker certifies his performances…but that’s not his main broker account. In fact, on Youtube he shows Interactive Brokers. That is a cheap NLP trick to plant in your brain something positive, reassuring, so that you link it to something else: now in your mind, all his accounts are certified.
What he really does is exactly what critics say: the broker page can be easily manipulated.
“Dude, I am not going to pay a Big 4 exorbitant cost just to prove to you that my performance is legit” the charlatan might reply. I agree. The easiest way is not to use your performances as marketing material and avoid all the hassle. Unfortunately, this is a black-and-white situation, there is no middle way…other than going to work for a fund and having them manage the auditing process.
Hugh Hendry or MacroAlf, to name a couple names from Twitter, worked in the industry, and now they are doing their own thing, but they can always refer to their previous life, with all the caveats of the situation.
Imagine the reverse: you are a person with integrity, you care about what you do, and you want to demonstrate that your performance is legit: would you just record a YouTube video and call it a day?
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Question 4: Where are your students' yachts?"
Charlatan: I interviewed them on my YouTube channel. But money is a sensitive topic, not everyone is open to talk about it. I respect their privacy.
This question is even more complicated to demonstrate than the performance one, it has all the above issues plus the fact that it is impossible to say if that student turned out to be good (or bad) because of the purchase of this specific course and the quality of the sample under examination. I think the only successful example in this sense is the Turtles one, just because some alumni went pro and had their performances certified by the proper process.
I understand where the question comes from, but it is definitely the wrong one to ask because you will never have a satisfying reply. In the end, you want the course to work for you. If I was looking to buy a course, whatever topic, I would just concentrate on the person/team behind it. But if we are talking about universities and MBAs, where alumni went and what salary they got is a very important type of information you should get.
Question 5: Why don't you start a fund?
Charlatan: Managing someone else money is not a job for me.
At first, I remembered he said that he did not want to do it because it was emotionally difficult, the responsibility to manage someone else money. After a second listening, the reply is more hilarious. He says that clients might ask you about drawdowns, and usually those clients do not know anything about finance. But…that’s exactly what you do in a course about trading, explain to people how trades work?
And his suggestion of clients showing up unannounced means he has a weird idea of what it means to manage a fund. I have been to countless meetings with portfolio managers: the manager is obviously well-trained by the marketing department on how to reply to tricky questions, and those meetings are planned in advance. But that’s me as an Institutional Investor.
Retail investors can maybe have interactions with a fund manager during some rare events but look at BlackRock’s lobby in London. Show up one day unannounced and tell me if they let you in (I doubt it).
Now, I managed other people’s money, and never felt any additional pressure. The incentives are aligned: do good for others, and you would be rewarded. If anything, the system might push you to take more risk.
Managing others’ money brings no more pressure than managing one’s own, especially when incentives align. In fact, the system could encourage more risk-taking with others’ capital.
Question 6: Aren't you afraid of gambling away people's savings?
Charlatan: Exactly, I don't want to feel responsible for a widow's pension.
The charlatan paints a doomsday picture of a widow losing her life savings in his fund. Again, that’s not how it works. Especially if you flag the risks properly in the fund, as in “I might incinerate all your money” (or technically a gating provision) if that is what you are worried about.
But let’s compare this with selling trading courses. Let’s say you have a daughter, and you have to choose between managing money for her or teaching her how to trade and then let her do it by herself.
You know how good you are, you also know how hard it is to be a profitable trader and how hard it is to transmit your knowledge to someone else. Remember Soros and his backache story? What would make you decide that the teaching route is the best?
That same widow could buy your course and gamble away her pension.
I know people that trade solo, do that for a living and have no intention of “going pro”, managing money for others. None of them sell courses, though. Many successful pro money managers wrote books. None of them started a teaching business. And as far as I know, none of the traders in the business of selling courses ever went pro.
Curious coincidence. But given the big incentives in managing other people’s money, you need to have a very particular set of values, to choose not to do it, brag about your trading prowess and sell courses based on it. But you can’t go pro because you do not want anyone else to check your results.
Question 7: Why is Your main source of income selling courses, not trading?
Charlatan: It would be crazy to have only one revenue stream, not to diversify. No one knows how my revenues streams are split.
The charlatan deflects the question of his income source by framing it as a diversification strategy. But the real question is: if trading profits are as robust as claimed, why push courses so hard?
The push is real, and scalable. To research this piece, I went on the website of another Italian alleged super trader/trading coach. Since then, I get bombarded by his ads on Youtube. Why does it never happen when I look for Dalio, Soros or Druckenmiller? They also have books to sell, don’t they?
The question goes back to incentives and transparency.
@WifeyAlpha was an anonymous Twitter account posting interesting research and some market predictions in real-time. The person behind it got into a beef with Hedgeye which doxed him and revealed his identity. He turned out to be a former hedge fund manager who blew up his fund. As you can imagine, most of the people used that failure against him.
But he was, light-years ahead in terms of transparency compared to you.
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Question 8: What kind of strategy are you selling?
Charlatan: I teach you my method.
There are two options here:
- Systematic approach – a set of rules, if A then B. But that can’t be the case because it would be arbitraged away as more capital is deployed into the strategy. Knowing this, the teacher would be very stupid in sharing it with others and not keep it for himself.
- Mix of systematic and discretionary approaches – The scarce resource for this type of strategy is time. It takes a lot of it, to research, tune, adapt and properly validate the strategy. You have to stay in front of a screen in order to execute it.
Beating the market is hard. No one has the time to do that and prepare a course, record it and do relentless marketing campaigns about it.
“I teach you my method” is the charlatan’s synergy: I teach you how I trade, so I can generate two revenue streams out of the same strategy. Unfortunately, this is not Jamie Oliver telling you his chicken recipe.
No one gives away knowledge at a fraction of its value, and the value of alpha is high because of how scalable the information is.
The only way those courses are worth more than their costs is if they provide public knowledge but are organised in a more efficient and effective way: the buyer would acquire “beta concepts” like risk management faster and in an easier-to-digest way.
But there cannot be alpha. Maybe “past alpha”, strategies that worked in the past but no longer do, or worse “fake alpha”, something that looks great in a backtest. People that sell this type of course do not use their trading performances as marketing material.
For more, go and discover a great blog about personal finance & financial independence – Theitalianleathersofa.com.
Good Luck and Keep’em* Rolling!
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