Taking Stock: Investment Warnings

Dear Mr. Berko:
Your column is the first page I turn to in our newspaper, and I have done very well in the last eight years following your good advice. Now I must write you regarding a radio show here on WLS-AM in Chicago. It’s called “Unconventional Wisdom, The CSE Investment Show.” They advertise for you to sign up and pay for their seminars on how to make money on stocks using options regardless if the stock market goes up or down. They teach you how to use options such as covered calls and leaps to make money. The two show hosts, Mr. Hooper and Mr. Zalewski, say that using options, we can always make between 3 percent and 6 percent every month and that sometimes, we can make as much as 10 percent to 12 percent monthly, even when the stock market goes down. And they say if I do this in an IRA that the gains will be tax free. I’m 74, recently retired and this seems like a better idea than working part time as a telephone solicitor.

S.T., Aurora, Ill.

Dear S.T.:
WLS, a huge 50,000-watt station at 890 on the AM dial, is fondly called the “Big 89.” It was founded in 1923 by Sears Roebuck, which inspired the call letters as the World’s Largest Store. WLS has an incredible history and is now a property of Citadel Broadcasting, which is having big problems paying their bills.

And S.T., you may also have big problems paying your bills, too, if you hook up with Messrs Hooper and Zalewski. Those pseudologists should broadcast that program on satellite radio, where the average respondent’s IQ and gullibility is 20 points lower. However, these lads must be attracting attention because I’ve received quite a few letters from readers who were agog at the 3 percent to 6 percent “monthly gain claims” no matter what the market does. A 3 percent monthly gain is 36 percent annually, and a 6 percent gain is 72 percent a year.

Some readers may not know that options are short-term contracts between a buyer and a seller to purchase or sell 100 shares of a named stock at a specific price for a specific time period ranging from one week to one year. And LEAPS is an acronym for Long-term Equity Anticipation Securities, giving the buyer or seller a three-year time frame to affect a transaction for a named stock at a specific price.

But let’s not get bogged up in an option discussion because they have nothing to do with my answer. Rather, because the concept of options is befuddling to most investors, it’s easy for a conjurer to spellbind investors with cockamamie claims like: “You can’t lose money in a down market” or “You can make 3 percent to 6 percent every month.” So forget the options. Just know that it’s a stupid waste of your money to attend one of their disingenuous seminars. Are you ready? OK, now read on.

I’ve been an investor for almost 60 years. I’ve managed clients’ money for 43 years and have written this column for 35 years. I’ve watched a lot of water flow over the dam, and in all those years of watching, I’ve never heard of a mutual fund, investor or hedge fund claiming to earn 3 percent to 6 percent each month for any extended period of time. Bernie Madoff, who was a bosom buddy of ex-SEC chairman Arthur Levitt, only claimed 10 percent annually.

But Hooper and Zalewski’s returns are so “fabulistic” that the Big Shots at Goldman Sachs, Merrill Lynch, Fidelity and Vanguard would sell their mothers and daughters into slavery for those skills. Well, maybe not Fidelity and Vanguard.

If you are not convinced, then before you plunk a chunk of change for a mendacious seminar hosted by two mythomaniacs, request the names and phone numbers of six previous attendees who have earned 3 percent a month for at least 3 years and call them. However, I’ll wager nickels to knickers they won’t give you real names. Messrs Hooper and Zalewski are what a plaintiff’s attorney would call “articulate incompetents.”

And for the record — gains you make in an IRA are never tax free; rather, they are tax deferred. And there’s an important difference between the two.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.

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