Most people realize the true success of investing comes with a long-term perspective. Unfortunately, they lack the patience necessary to realize that success.
Just watch late night cable television or shows over the weekend. Mixed in with all of the weight loss and get-fit infomercials are the get-rich-quick programs centered around stock trading strategies.
Many of these programs seem too good to be true and, in at least one case, that was exactly the case.
The Securities and Exchange Commission announced last week it has settled a judgment against Linda Woolf for her role in a program called “Teach Me to Trade,” which included classes, mentoring and software programs on how to make fast money in the stock market.
The SEC announced Woolf, without admitting or denying the allegations, agreed to pay a civil penalty of $225,000 and is permanently barred from conducting similar investment schemes, a small penalty when you consider the SEC claims she reaped an estimated $4 million from selling the programs.
Regulators first got wind of Woolf in 2008 as she and her colleagues worked across the country with stops in San Diego, conducting free seminars intended to lure people to pay for their program. They claimed a 96.5 percent success rate for students who followed their investment plan.
Christopher Cox, SEC chairman at the time the original charges were flied against Woolf, said the allegations “depict a cold-hearted scheme that preyed on the elderly, the desperate, and even the unemployed by promising financial security while instead robbing victims blind.”
The price tag for the courses ranged between $11,000 and $40,000. Potential participants were often urged to cash in their retirement accounts to pay for the services.
Woolf, herself, claimed to be a student of the “Teach Me to Trade” program, going from being an elementary school teacher to a successful stock trader, thanks to the program.
“I had no idea it was that easy to learn how to make money in the stock market,” she claimed in one of the teaching videos.
However, the SEC claims she never declared a trading profit on her federal income tax returns and some of her colleagues in the scheme actually declared losses.
The attractions of fast profits from the stock market are certainly alluring. However, the truth is riches come from time, not timing.
According to Standard & Poor’s, the average annual return in the S&P 500 stock index over a 20-year period ending in 2012 was 7.81 percent. However, by missing the 10 best pays for the market in those 20 years, the return is cut down to just 4.14 percent. Miss the best 30 days out of the approximately 5,000 trading days during that period and you actually would have a negative annual return.
Throw in a good mix of dividend-paying stocks — and reinvesting the distributions — and the return becomes even more dramatic.