Investment Advertising Gone Bad

A few months ago my wife and I received a 16 page investment advertisement in the mail. It's entitled "The McShane Letter, circulated by market pundit Don McShane. I immediately chucked it in my recycle bin. A few days later I retrieved it and read through each page. It absolutely dumbfounded me. The further I read the more I thought how ridiculous this marketing message is. However, over time I began to realize that what I may find crazy may be extremely compelling to others. The purpose of this blog post will be to identify strategies investment companies use to emotionally motivate a prospect to invest, followed by a few examples of when to be wary.

How Marketing Can Appeal To Our Emotions

Humans are always trying to do things better. Just look at technology and medical advances in the last decade! From an investment standpoint, there will always exist a sexy allure in capturing stock profits above and beyond what the market delivers. It's well documented that investors naturally react to news headlines, the fear of missing out on an opportunity, or what their friends, family, or colleagues are doing financially. The massive amount of research covering investing behavior overwhelming suggests there is great difficulty in eliminating emotion from investment decisions. Investment advertising obviously strikes an emotional chord. However, when the wrong type of advertising promoting "shiny objects" influences an investment decision, the results can be unfavorable (putting it mildly).

First, lets look at what a respected company is doing. Here is what iShares is currently promoting:

Tasteful, simple, fairly compelling. They hit our performance trigger, used a nifty graphic, and offered the reader a chance dive deeper. Well done! In my opinion, iShares advertising is tasteful, and not over the top. Just the way it should be. Disclosure: I'm a propronent of iShares and their exchange traded funds (ETFs), and I use one of their products in my company's portfolio models.

Looking In Depth At The Ridiculous

Let's get back to the McShane advertisement. It's almost comical the claims the author makes in the relentless promotion of his latest penny stock pick, IFAN Financial, Inc (IFAN). The McShane Letter starts by identifying the "epidemic" problem of online credit card threat. The solution? A company that allows users to make online debit card purchases without the use of credit card information. The future of this "Next Paypal" technology could "single-handedly save the $1.2 trillion e-Commerce industry... and make early investors a fortune virtually overnight". Wow!

Buying this $0.29 stock is such a good idea The McShane Letter cites an investment urgency of 96%! The potential profits are calculated to be 92%. Obviously this is a "strong buy"...

I wonder how the author came up with these conclusions? Nowhere in the ad can I find evidence of how these percentages were calculated.

So far we're only on page 3 of this 16 page ad. I'll spare you from the rest of what "could be my biggest winner yet." If you'd like to read through the ad, there's an online version HERE.

Changed my mind. A few more memorable quotes:

"Unstopable Technology"

"Enormous Potential"

"Proven Management"

"Undiscovered Windfall"

"Possibly The Bargain Of The Century"

"You Could Potentially Retire On IFAN Stock"

"Rare Opportunity For Regular Investors"

"Going To Hand Investors A Huge Winner"

Convincing right? I already feel like an idiot for not owning it...

3 Reasons Why You Shouldn't Buy Into Garbage Like This

1. This is entertainment, not advice. We can confirm this by reading the disclaimer. The very first sentence states that the author is in the business of "advertising companies to generate exposure through newsletters for monetary compensation". Translation; they are in the marketing business, not the investment advisory business.

2. No supporting evidence. I spent more time than I should've researching Don McShane. According to FINRA's BrokerCheck, neither he or his circular appear to be registered as a broker or investment advisor. On his SITE, there is no published track record of any kind. A Google search list is less than complimentary of his publication.

3. Market timing and individual stock picking are extremely difficult. If you've read any of my content, you've probably seen me present various statistics regarding the inconsistency of professional investment managers. Further, most fail to beat their benchmarks after fees.

Conclusion