The danger in a direct mail offer is directly proportional to the number of exclamation points contained therein.
This item is a letter from TD Ameritrade, one of America’s premier discount brokerage houses. TD, which has enough spare cash that it can buy naming rights to the Boston Celtics’ arena, stands for Toronto-Dominion – one of the five banks that oligopolizes the financial industry in Canada. On the list of wretched ideas imported from the north, this offering ranks somewhere between SARS and Celine Dion.
Under the guise of offering you Free Investment Ideas! and Low-Cost Trades!, TD Waterhouse is indirectly encouraging you to weaken the economy. The fine print on this offer (not shown, like you were going to read it anyway) requires you to exercise your 100 trades within 60 days.
Buying or selling 100 securities in 2 months is one of the most efficient ways available to squander your money. Let’s examine why. Anyone dumb enough to take full “advantage” of TD Waterhouse’s generous offer is somewhere on a continuum between
-buying 50 stocks and selling 50 stocks and
-buying 100 stocks
in the allotted time. Let’s look at the first extreme example. Is it reasonable to assume that an amateur investor (or even a pro) could select 50 stocks and have them not only increase in value as a group, but increase by an amount greater than the interest to be gained by alternatively putting money in a certificate of deposit? The Dow has gained barely 1% in the past 60 days, but that comes with an asterisk. The two weakest of the Dow’s 30 components, General Motors and Citigroup, were relegated to the minors last month. Their replacements (Cisco and Travelers, respectively) artificially boost the numbers.
Granted, that’s the riskiest possible way to execute the 100 trades. What about the most conservative way? Buying 100 stocks in 2 months certainly fulfills one of the investor’s first commandments – diversify. It’d also be extraordinarily expensive. If you were to buy in the minimum standard quantities of 100-share lots, and only bought stocks that were trading at close to $1 (i.e. in danger of being delisted), you’d be spending approximately $10,000.
$10,000 to buy the most volatile stocks on the board? Sure, you could buy more expensive and thus presumably more stable stocks, but clearly it’ll cost you more. Buying a full portfolio of $5 stocks – which would still fall well short of blue-chip status – would cost you $50,000. If you’ve got $50,000 to invest, there are far better places to put it than in a basket of 100 low-cap companies. A mutual fund, for instance.
One of the most depressing places in the western world is the race and sports book at The Plaza casino in downtown Las Vegas. Most of its clientele is disheveled, grey-skinned men (they’re always grey, regardless of race) trying to make sense of the Daily Racing Form and its columns of jockey names and previous finishes and other minutiae only tangentially related to who’s going to win the 6th at Ruidoso Downs this afternoon. These men (and the occasional schlemiezel of a woman) subside on flat Schlitz and complimentary hot dogs, not to mention tobacco in all its suicidal forms. The only difference between those horse players (or their even more pathetic counterparts, the dog players) and the would-be tycoons plying their trades with TD Ameritrade? At least the race players get to watch their money disappear quickly. Nor do they hold on to an empty faith that they’ll somehow recover their losses, once their chosen mounts finish DFL.
Even despite a 20% “surge” in the last 4 months, the stock market is currently at only its 1999 levels. But bull market or bear, offering 100 free trades only encourages recklessness. It’s inaccurate to say there are literally no shortcuts to building wealth via investing in securities, but buying 1.67 stocks a day hardly lends itself to the cold fundamental analysis that successful investors swear by.
It’s almost always possible to make some money off some particular security investment. Take General Motors – a company that continues to be emblematic of the United States itself, for richer or for poorer. Could you build wealth with GM stock? Absolutely. Buy it on October 1, 1974 at 15 3/8. Sell it a quarter-century later at 87. Then immediately get certified as a United Auto Workers union member, so that when the stock trickles down to 27¢ and a future American president rearranges the traditional hierarchy of creditors to correspond with levels of generosity shown toward his campaign, you’ll be at the front of the line when it comes time to claim liquidated assets.
Obviously, these numbers were researched retroactively. That should tell you something. TD’s direct mail piece is the equivalent of the local methamphetamine dealer offering 100 free hits (or tabs, or tokes, or injections, or whatever units meth is measured in.) Not only is there no free lunch, there are no free trades. Especially not 100 at once.
If you’ve made it this far in the post then clearly you figure that by now, we’re saving our most fiery derision for TD Ameritrade itself, right? Wrong. TD Ameritrade’s just trying to make a buck. A licit buck that serves the purpose of extracting money from its idiots. TD Ameritrade is doing nothing illegal nor immoral. And yelling “stop me before I throw away my money again” doesn’t change that. Producers can’t produce demand: they can only produce products. Without users, there are no dealers. Without smokers, there are no tobacco conglomerates. Without a Lindsay Lohan or a Josh Hamilton, there’s no need for a Frank Lucas or a Ricky Ross. Without an Antão Gonçalves, there’s no Songhai Empire selling its citizens into slavery. And without idiots thinking that the stock market is a fecund garden ready to be harvested from the comfort of a laptop, there’s no purpose for a TD Ameritrade and its ridiculous offer of 100 free trades.
But hurry. This offer expires today.
