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By Angelica Leicht
By Jeff Balke
He says software like Wizetrade shows only "market trading patterns, and the market tells you absolutely nothing about the underlying health of the company, how much cash flow the company is generating, et cetera. We think the way to go about investing is to be an investor, not a gambler."
Larson continues: "I think an important part of investing is to keep the potential return that you can earn in mind we're expecting stocks, over the long run, to return somewhere in the neighborhood of 10 to 12 percent over many decades, that's been the historical return. So whenever you see someone that's going to promise you that you're going to double your money in the next year, for instance, that's something you should really be wary of."
Of course, there is no shortage of theories when it comes to investment.
Dimensional Fund Advisors in Santa Monica uses the efficient market theory to manage its $86 billion in assets. It's kind of an anti-theory that states there is no strategy that can consistently outperform the market. The market is "perfect" -- all the information is right there in black and white, and the only way to get ahead of everyone else is via insider trading.
So it's no surprise that Dimensional VP Weston Wellington is skeptical of software like Wizetrade. Wellington wasn't familiar with Wizetrade by name, but has encountered similar trend-following software in his 30 years in the industry.
"Analyzing price patterns in stocks has consumed the careers of many people over decades," he says from Santa Monica. "It just doesn't sound plausible that all the people studying all these patterns could have been looking in the wrong direction until this guy comes along."
Wellington points out efficient market theory's "anomaly" clause -- an investment secret can only stay secret so long.
"Let's suppose for the sake of argument that they have stumbled across some great trading rule," he says. "How long is it going to be a secret? Suppose it is the case that if price patterns do X then you're almost certainly to see Y. Well, if that becomes common knowledge, people are going to start to trade upon that information ahead of time."
He adds, "It's probably going to have a hard time passing a smell test of statistical significance. But it'll never stop people from trying. There's always going to be some pattern you can find that worked perfectly in the past."
And because people won't stop trying, the CFTC issued a software fraud alert for its domain, forex.
The commission urges investors to avoid doing business with people who won't give information about their backgrounds and to stay away from companies that predict or promise big profits.
"The currency futures and options markets are volatile and contain substantial risks for unsophisticated customers," the commission warns. "The currency futures and options markets are not the place to put any funds that you cannot afford to lose. For example, retirement funds should not be used for currency trading. You can lose most or all of those funds very quickly trading foreign currency futures or options contracts."
Because forex involves highly leveraged transactions, which "increases your possibility of profit but also increases your possibility of loss exponentially," says Paul Hayeck, the commission's associate director of enforcement, "you can get wiped out in a hurry."
"When you see contracts that are that one-sided and that unconscionable, for me as a consumer lawyer, that raises red flags about the transaction," Eric Coakley says from his Denver office.
Coakley is looking for class certification in a suit filed against GlobalTec on behalf of frustrated 4X Made Easy buyers. He's talking about GlobalTec's refund and complaint policies. Dicks declined to comment on the suit.
However, GlobalTec/Dynetech spokeswoman Dori Madison said the plaintiffs sued because "They really wanted to work for the company, is what it came down to. Because they loved the product They really wanted to work with the company, and there just wasn't a spot for them."
Coakley says his clients, wowed by the free demonstration of the software, took it home only to find out the thing was impossible to understand without instructions.
"They don't know how to use it; they haven't received the instruction," he says. "So they can turn it on, they can see the red and green lights, and all the pretty arrows and everything, but they don't know -- they can't interpret it."
According to a 2003 4XME "terms and conditions" purchase agreement, refund rights are forfeited at the end of a one-day training program, on the 15th day from the date of purchase, or when the purchaser gets the "4XME DVD Training Series" (the instructions) -- whichever comes first.
In an e-mail, Madison stated that the refund policy was inaccurately described and "meets or exceeds the requirements of applicable state and federal laws."
Moreover, the agreement states that customers waive their right to trial by jury and that all disputes must be resolved by arbitration in Orange County, Florida. The arbitration must be conducted by three attorneys with more than ten years' experience each, unless one of them was previously a judge.