This is a mobile optimized page that loads fast, if you want to load the real page, click this text.

If a system is profitable why would they need to sell it?

Jump to new
S

stockGURU

Joined
13 July 2004
Posts
331
Reactions
4
I see this quote a lot, particularly in regard to those flogging black box systems for many thousands of dollars.

Is this essentially a truism?

If a black box system could generate consistent profits, why would it need to be sold? Why wouldn't the developers make their fortunes by simply trading the system themselves?

Selling something to a lot of people takes a lot of energy and money. Seminars need to be arranged. Venues need to be booked. Salesmen need to be employed. The essential infrastructure of a business needs to be set up: office, P.O. Box, phone, website, and so on, and so on...

Has anyone here actually made consistent profits from following entry/exit signals from a black box system or are they all basically rubbish? If they are, why hasn't ASIC cracked down on the spruikers selling these black box systems to ordinary Aussies from anywhere from $5,000 to $10,000+?

Would be very interested in hearing people's opinions.
 

My friend, I think this one explains its self...........
 
Often tell the story about going to a seminar on a Black Box System back many years ago. Friend asked me to have a look at it as it was $12-15K from memory and he wanted to know if he should buy it.

He had my answer before we left but I went anyway.

From what I could see it was a Stochastic M/A based entry with a parabolic SAR exit. Very basic simple stuff.
Each chart shown went straight up with the appropriate buy and sell signals.
After taking notes for an Hr In general question time I went to town.

(1) The buy and sell signals are the Stochastic/M/A and Parabolic---silence then they are proprietary.
(2) Why is every chart you show going vertical with no losing trades?
---Thats what the system finds.
(3) Has the method been proven in a bear market.--No why would you trade a bear market---exactly!
(4) Can you guarentee your system will return profit year in year out.---No there is a risk to trading.---whats the risk?---that it may not be profitable.

Buy now I was being heckled by the crowd-- I remember one guy yelling out---sit down its not compulsory to buy it!.
Bought laughter to the crowd.

My mate reluctantly kept his money.
I had a round 6 people come up and thank me for getting up and having a go.
But as I walked out I saw 8 or so people lined up behind 2 sales desks writing contracts as fast as they could be written.
Ive never heard of these guys again.

Why are they sold.
16 x $12,000 in a few hrs = $192,000 10 or so years ago.
Good trading in anyones language.
 
Most of them are useless. If it is really that profitable, they would make more money trading themselves rather than selling it.
 
stockGURU said:
Would be very interested in hearing people's opinions.
Click to expand...

There are always exceptions, but yes, generally these systems are worth about as much as soiled toilet paper on the floor of a public dunny.
 
These systems are indeed very profitable and low risk - for those selling them.

If it sounds too good to be true then it usually is. There are exceptions of course, like distressed sales of assets / products or where someone is handing out a subsidy to get some idea or product off the ground (eg the recent offer of effectively free solar panels). But neither of those are likely to apply to a "black box" stock trading system.

With anything in life, it's worth applying the "is it reasonable" test. If a fund manager shows a return that's modestly above the market (after their fees) over 20 years then that's plausible. But selling the secret to riches isn't likely - if it was true then a bank or fund manager would just pay whatever they needed to buy out the company and use the system for their own benefit.
 
Here is a scenario:

You read Market Wizards and like the way the Turtles do their stuff. You have read up on the likes of John Henry and Bill Dunn. You've read Trend Following by Michael Covel and you realize that a systematic approach is the way to go because it suits your personality. You buy Howard Bandy's book and Amibroker in order to develop one yourself but it dawns on you that you simply don't have the time or knowledge to build such a system.

Would it prudent you approach someone and pay them to do it for you?
 

Indeed it would.

I'm sure a few here have done very similar.
I know I have.
But the vast difference is that you can and should take a role in understanding the construction of your trading method.
It should be far from a black box.
Importantly you should also understand its resultant blue print.So you can gauge if your actual trading mirrors testing results.
Its testing procedure/markets and look back periods for personal confidence in trading the method.

I doubt that purchasing a "black Box" even from a trusted source---without the above knowledge could quite possibly see failure in trading even a tested proven profitable method.
 
Been trading my own systems for a few years now, (hometrader). I have found it very valuable and has provided me results. I run on average 3 systems simultaneously, based on the trend at the time (bull,bear,sideways). Ive been to a couple seminars where they try to sell you their own systems and i have to be honest, i think they are perfect for the right kind of person.

If you:
Dot no have the time to learn trading well enough that you feel confident
Know the charting but not come up with a good system yourself
Really can't understand fundamental analysis or don't have the time/effort.
Trust neither your broker/adviser or your own trading skills.

But like most things knowing a bit about what your getting yourself into is more important, $15,000 for a system is ridiculous IMO regardless the returns promised.
 
But like most things knowing a bit about what your getting yourself into is more important, $15,000 for a system is ridiculous IMO regardless the returns promised
Click to expand...

But the question is.

Would you invest that ($15,000 or whatever) with people who worked on your behalf to build YOU YOUR trading system?
 
tech/a said:
But the question is.

Would you invest that ($15,000 or whatever) with people who worked on your behalf to build YOU YOUR trading system?
Click to expand...

If they built it to fit my risk profile, or if i felt comfortable with its designed profile I think i would.

Depends on the fees and what not. Then again you pay 2-10% management fees to the professionals to do the same thing at the bank so its not that strange an idea.

And getting back on topic. If you can make money by trading the system, and make money off of selling/leasing it, whats wrong with that? Sounds like good business to me.

My

Disclosure: I trade my systems on a small portion of my portfolio and have a professional manager handle the rest. Personal portfolio up 20%, managed down 20%, guess where my faith rests.
 
Disclosure: I trade my systems on a small portion of my portfolio and have a professional manager handle the rest. Personal portfolio up 20%, managed down 20%, guess where my faith rests
Click to expand...

What are you doing!!!

80/20 rule.
80% of your profit coming from 20% of your portfolio.

Guess where your money SHOULD be?
 
tech/a said:
Why are they sold.
16 x $12,000 in a few hrs = $192,000 10 or so years ago.
Good trading in anyones language.
Click to expand...

Apart from the sales, there is another reason....and that is:

To attract more/fresh money into the market.
 
Even if it is profitable now, it does not mean it will stay profitable next week. Markets change all the time.
 
Do a google on Lifestyle Trader together with Affiliate. There is a 20% commission for signing someone up to the Aussie Rob System. As it is $10,000 to sign up you can see just one sign up a week and you make $100K a year. No wonder these guys will pay to set up a stall at all the Investment Expos.
 
Why do they sell the system rather then use it themselves?

answer: Well most systems are not guaranteed to make money AND have risk associated with them. I would ask how much risk is involved in selling a system to some unknown punter? = None, if they are not successfull using your system 99% of the time they think its themselves, and you already have their money then anyway. Plus once you have sold them one 'system' you can sell them more - bombard them with crap and sell sell sell, they take people for 1000's and 1000's of $$. Why would you bother risking trading when you can have no risk, pay a saleman commission only to sell your product?
 
The reason people buy black box systems is that they are seduced by the dream of easy riches fed to them by unscrupulous, greedy, lying sales people who don't care what happens to the client once they have their commission. Or they go to seminars where someone with the gift of the gab whips the crowd into a frenzy of excitement and tells them they need to act now before they miss out...... group psychology.

The reason people sell black box systems is obvious!

Aussie Rob's black box system (I was told by an insider) is just a moving average crossover. I have seen other 'proprietry' indicators and they are just combinations of indicators available to all of us - usually lagging!

The reason ASIC does not catch these people is that the clients who have been ripped off don't lodge complaints. I think they are often too embarrassed to admit how much money they have lost and how easily deceived they were, which is unfortunate.

This comes with apologies to those people who DO sell good systems - I know there are some.

Ruby
 
You probably answer the question yourself.

However, I read from someone I considered reputable (ok, forgot where, but he made a convincing case), that certain systems sold actually do have an edge but it is that the creator could not exploit them. This is probably due to bad position sizing or the psychological makeup of the creator does not fit what his system may need to have. (i.e. long periods of drawdown, not enough wins, etc)

Another case is that the creator has created a system with a statistically significant edge but decide to sell a "lesser" version for thousand of dollars as a "hedge" against drawdown. It's not a bad strategy at all if you consider the amount of capital employed by the buyers of those system may not be enough to diminish the edge of his original system.

At the end of the day, I believe these systems are still rare and being sold as a black box, it is impossible to validate its edge statistically.

It does not hurt though to still sell some "lesser" ones for hundred of thousand of dollars and keep those with a high reward/risk performance to yourself.
 
You must log in or register to reply here.

Similar threads

DrBourse TA Help for Beginners
14 15 16
Replies
319
Views
67K
farmerge
R
Best Books I Read Last Year
Replies
18
Views
4K
MDWake
R
21 Lessons in Investing
Replies
6
Views
3K
divs4ever
R
The 7 Moats of Quality Companies
Replies
7
Views
7K
divs4ever
  • Sticky
How to identify an investment scam
3 4 5
Replies
98
Views
61K
farmerge
Menu
Log in
Register
Cookies are required to use this site. You must accept them to continue using the site. Learn more...