By Ann Coleman (TMF AnnC)
May 25, 2000

What a bummer. Just a few weeks ago, my investments were up almost 50% for the year. Now they are below where they started on January 1. It's times like this that one starts to doubt the decision-making process that got me into those stocks in the first place. Is picking my own stocks such a great idea?

Maybe I should have followed David Gardner and just bought the Rule Breaker stocks. Ooops. That would have been a great idea back when I first discovered the Fool, or at most times since, but doing that in January wouldn't have been such a hot idea if I was looking to improve on my performance so far this year. The Rule Breaker Portfolio is down 30% for the year.

OK, maybe I should have switched to index investing. That way I don't have to pick stocks at all. Back in January, the Nasdaq 100 index shares <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: QQQ)") else Response.Write("(AMEX: QQQ)") end if %> looked good. They were up an amazing 80% for 1999. But that wouldn't have been such a good idea either. Q's are down 21% for the year. Sheesh! What do you do?

Well, one thing you do is realize that the market is going to hit bumpy stretches where almost all investing strategies look like road kill. The last thing you want to do is sell out at the bottom. But more to today's point, you don't want to give in to the idea that someone else is better able to manage your money than you are yourself. Of course, there are people better able to manage your money than you can. But those that can aren't very likely to want to. The ones that want to, though, are usually more concerned about their own financial gains.

I will grant that the advice of other investors can be extremely valuable information. Gather all the opinions you can. But don't give into the temptation to follow anyone blindly. Even The Motley Fools -- especially this Fool!

As I said on Monday, we are going to look at a couple of websites that want you to trust them and follow their advice -- after paying for it, of course. The first is Wade Cook. Yes, he's still in business selling his pricey seminars ($4295 on special!) despite the best efforts of the SEC and several states' attorneys general.

The problem with Wade Cook isn't so much that he gives bad advice but that he charges so much for his bad advice. His website has the usual disclaimer about how the information isn't guaranteed to be accurate or even useful. Standard stuff, much like our own disclaimer, except for the first paragraph, which urges readers to call the company to verify the accuracy of any negative statements that they may have heard about the company. The paragraph concludes:

"As you can probably appreciate, occasionally we get disgruntled individuals who make false or defamatory statements, which should be summarily disregarded. Unless a negative statement is verified by the company, you should assume it is false."

I can appreciate that, actually. Every business, including ours, has its share of disgruntled individuals who make false or defamatory statements. But most don't have so many that they need to start off their legal disclaimer telling people not to believe them. (Note: I called the number to verify some negative statements, but no one has called me back. I guess if they never call me back to verify those negative statements made by the SEC -- and Texas, California, and Arizona legal systems -- we can assume they are false, right?)

My purpose today isn't really to pick on Wade Cook. With his stock (OTC:BB: WADE) selling for $0.23 and his legal troubles, I kind of hate to add to his woes. Instead, let's just consider Wade's business as an example of companies that make their money by telling people how to invest. When Wade Cook Financial Corp. disappears, you can bet that there will be others filling that cyberspace. There already are. And, at first anyway, they won't have lawsuits and investigative reports all over the Internet warning you. How do you tell the good guys from the bad?

1. They make their money from you, not the market. Ever heard: "Those that can, do. Those that can't, teach"? (Apologies to all you wonderful teachers.) It's always a good idea to ask yourself why people would be willing to sell you their secrets to wealth. If you knew how to make 300% a year from the stock market, would you spend your time running seminars? Just how altruistic do you think these guys really are?
   
   
2. They recommend risky investing strategies. Options, margin, commodities, day trading, gold futures, currency trading, and much more stuff you've never heard of (remember viaticals?), all with fabulous short-term returns. Sure, some people can make money with these strategies. Undoubtedly, many have. But they are highly specialized and require skills and knowledge way beyond that of the average investor. Can you multiply six digit decimals in your head?
   
   
3. They sell you. Wade Cook's seminar salespersons have been known to tell prospects who can't afford the seminar that they should take out a loan (Visa at 22%, anyone?) to pay for it, although I think they have modified that approach recently due to certain legal proceedings. And they are such friendly, likable guys, so sincere, how can you doubt them? The harder someone tries to sell you a service, the faster you should run in the opposite direction. The hard sell, all by itself, is proof that the main beneficiary of the transaction will be the seller. You are the buyer (just in case the pressure from your new friend has you confused).
   
   
4. The clincher: How badly do you want to believe? Listen to that small voice inside you that is jumping up and down squeaking, "Don't do it!" Pay attention. Is there a war going on between your intellect and your emotions? Financial decisions that are made emotionally are almost always wrong. Choose your mates, your curtains, your pets, and your cars with your emotions. Evaluate financial advice with your head.

Tomorrow: An Internet scam and an interesting advice site.

Fool on and prosper.

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