How to start a stock trading and stock market advisory service?

How to start a stock trading and stock market advisory service?

Imagine you doing an experiment.
Invite 1 million people to come with one dollar each (or to make exact calculations, ask 1,048,576 people to come with 1 dollar each.)

Now begin the experiment as follows. Collect all the 1 dollars from the 1,048,576 people. Hence you will have 1,048,576 dollars. Divide the entire group of people into 2 equal groups - each containing 524,288 people. Call one group as “HEAD” and other group “TAIL”.

Toss a coin – if head turns up, the people in HEAD group win and viceversa. Losers – i.e. TAILS group have to leave the game. Each of the winners – in the HEAD group – get the 1 dollar from losers and hence people in HEAD group have doubled their money.

Now again divide the winners (HEAD group) of 524,288 people into two equal groups - containing 262,144 each. Again call one group head, the other group tail. Again toss a coin. Losers loose their money, and winners get that money. Basically, the winner’s money doubles every time.

Continue this game for 20 times, and at the end you will have only 2 people left. Call one of them HEAD, while other as TAIL. Toss a coin. Whatever turns up, you will have only one winner belonging to the head or tail group.

So at the end, the winner, One single individual out of more than one million participants, , comes out as a consistent winner, and keeps the entire price money of 1,048,576 dollars.

After this, this individual will become a celebrity. He will be interviewed on news channels, will be offered advertisement contracts like those of heath drinks, chyawanprash, etc. and he will write a best selling book on “How to toss a coin and win consistently”. :- )

Now, let’s carry on another similar experiment but with different apparatus.

Collect 1,048,576 email addresses. Divide them into 2 sets, each containing 524,288 email addresses. Call one of them UP mailing list and other set DOWN mailing list.

To the UP mailing list, send a mail that “Microsoft stock will go UP in this month”.
To the DOWN mailing list, send a mail that “Microsoft stock will go DOWN in this month”.

After one month, for half of them your prediction will be true. Suppose the Microsoft stock goes up. So, discard the DOWN mailing list. Take the UP mailing list and again divide it into two – each containing 262,144 mail addresses. Again divide them into 2 mailing lists of UP and DOWN and send mails of Microsoft stock going UP/DOWN accordingly. For 262,144, you will be true.

Continue this exercise for 10 times. At this level (10th iteration), you will have 1024 people, for whom you will have always been proved to be true – consistently for past 10 times.

Stop sending the UP/DOWN mail now. Instead, send a mail to these 1024 people, saying the following:

My market analysis has always been true, as evident from the past 10 months about the price movement of Microsoft stock. My prediction is backed by hundreds of hours of solid research and can never go wrong. However, now this service will no more be available for free. One must subscribe to the service with a charge of 1000 dollars each.

Chances are, that at least 95% of these 1024 people will easily believe you (you’ve been correct in your last 10 predictions consistently), and happily pay 1024 * 1000 * 95% = almost 1 million dollars to you.

Ask them to sign up a form, at the end of which mention in fine prints “Investments are subject to market risks”.

Voila, 1 million dollars in just 10 months with only an internet connection and free email account. Not a bad business idea. You are safe because you have mentioned in the contract - “Investments are subject to market risks”.

Ladies and Gentlemen, this is exactly what your advisory brokers attempt to do. When opening a trading and demat account, you are asked to sign atleast 30 times on a 45+ pages long agreement. How many of us ever read it?

Forget about being true for only half of the individuals. You can prove yourself true to more than 50% of them. In a month (30 days), it is possible to see a stock price sometimes going up and sometimes going down. Hence, if it takes the maximum fall on 21st, and maximum rise on 28th, send the mail to the 2 groups accordingly, mentioning the dates of the month on which your UP and DOWN movements were correct. You will end up with much more customers.

If you have further doubts over how the advisory services work, read the comment left by ANIL RAI on my previous article Are you really making money in the Stock Markets?

Have questions, please read the comments and post your views and queries in the comments section which helps in open discussion and avoids duplicity of questions.

You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.