Who's making the money here?
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By Chuck Jaffe, MarketWatch
Last Update: 12:23 AM ET Jun 3, 2005
BOSTON (MarketWatch) -- If someone told you they had come up with a way to pick winning stocks, your first question most likely would be "How do you do it?"
Your second might well be "How can I do it?"
The difference between those questions might seem small, but it is enormous when you are considering laying out thousands of dollars hoping to buy your way to success in the market.
There are countless hawkers of investment software and programs that promise they can turn the stock market into your personal cash machine. But if they won't tell you how they actually achieve that, you've got a problem so big that purchasing the program could qualify as a Stupid Investment of the Week.
In fact, that's precisely why the Go Gecko investment software package from MX-Technologies Inc. wins this week's trophy for problematic issues.
Stupid Investment of the Week highlights the traits and flaws that make an investment less than ideal for the average consumer, in the hope that spotlighting trouble in one security will make it easier to root out elsewhere.
While obviously not a purchase recommendation, neither is SIOTW intended as an automatic sell signal, though many of the investments a consumer could make in financial software come with money-back guarantees that make for an easy escape.
What's more -- and this is crucial with software programs -- what makes an issue worthy of Stupid Investment of the Week has more to do with how the product is sold; it is entirely possible for a program to deliver good results, but still not be right for the average investor.
Go Gecko investment software "is so simple almost anyone can use it," according to its demo (and you can see the demo here: http://www.mx-t.com/geckodemo/index.htm
). It promises to be the "most-user friendly available anywhere in the world today."
Essentially, the program is supposed to analyze the market and pick stocks for you. Functionally, however, you will have to decide which of several analysis methods to use.
While the demonstration program tells you that if you are using the "relative-strength index" to root out potentially profitable stocks, you should not worry if you have no idea what the term means, because it is all explained in the tutorials and the support methods. In fact, the same is said for virtually any term related to analytical methods.
But average investors looking at a program like this frequently want to find shortcuts, and Go Gecko promises so many of them that most people will forego a lot of the education to get cracking on making a fortune trading stocks.
Scott Copleston, the information officer at MX-Technologies who responded when I followed up on a letter the company sent me about the software, noted that Go Gecko is "not a charting program. It has technical analysis with over 230 signals and indicators, plus fundamental analysis and it looks at stocks in virtually every way possible. It does it all for you."
A consumer who believes that is not going to spend much time trying to learn about the RSI or about the meanings behind those technical indicators, especially when the software is designed to analyze the market, throw out its picks and let the buyer do the easy part, namely cashing in.
In its product brochure, a graphic titled "1 year of facts ... $73,566.86 profit" shows "how profitable it could be if an investor took a small amount of money each day and re-invest (sic) the profits. ... If you started with $2,000 and made just a half of one percent a day, at the end of a year your profit would be over $25,000. At one percent each day, the profit would be an amazing $73,566.86 ..."
But the graphic is "for demonstration purposes only, as is every illustration of the software.
Individual results, as they like to say in these things, vary.
A savvy consumer would look at that kind of chart, hear about the great profit potential and ask the "How do you do it?" question.
In the case of Go Gecko, every question about why this program supposedly works is greeted with an answer that amounts to "Because it works."
When you get no details on why an investment system works, it is best to assume that the "science" behind it is hogwash. The software may be successful for one person and lousy for the next, but there's little telling if that's by chance as design.
The folks at MX-Technologies want you to believe it's by design. They offered me -- and presumably a lot of other folks -- a half-price deal with a catch: They'd waive half of the $7,800 regular price until I earned $30,000 in trading profits. If I didn't reach that level within 12 months, I could skip the second payment of $3,900.
That's a no-lose proposition for MX. They get paid upfront, and get a bonus if the customer actually makes Go Gecko work.
The company also offers to cover $1,000 in trading losses over the first 90 days a buyer has the software (provided you follow Go Gecko's recommendations), which is nice, but it still leaves an unhappy buyer out the purchase price.
With so little information to go on from the sales people, the literature and the Web site, it is obviously that MX is hoping you will take Go Gecko's claims on faith.
Comments from clients who made "$3,600 in one week" or "20 percent in one month" may actually be "on file at the company's head office" (the brochure says you can ask for verification), but it takes a big leap to pony up a few grand to try to imitate the experience described in a sound bite.
Without the answer to the how-do-you-do-it question and a detailed record of average profits delivered by past users, a buyer can feel certain about only one thing: The one who is certain to make money using this kind of software is the guy selling it. End of Story
Chuck Jaffe is a senior MarketWatch columnist. His work appears in dozens of U.S. newspapers.