Money: Silence on shares software

By Mary Holm

Money matters


Q. I read a few weeks ago your article on trading by PC, and I have my own bad experience with particular software.

I paid $7000 for a grey box (one that allows you some manipulation, but otherwise all hands-off share picking). It turned out to be a "lemon." It failed to deliver and the company has since absconded.

I love the idea of "earning a living by trading," but the software!!

I have no way of getting my money back, and with the loss in trading I am about $10,000 down the gutter.

"Be very, very careful," is all I can tell your readers. And read as much as you can before buying such software.



A. I'm not sure if the right lesson here is to read lots. No matter how much you read, no system will magically deliver "a living by trading." But good on you for writing. At least you might keep others out of the lemon orchard.

Yours wasn't the only response to the August 28 Money Matters about computer-based schemes that promise big profits from share trading.

One reader reckons he's all too familiar with the people running one such scheme.

Before they turned their attention to the sharemarket, he says, they were busily engaged in promoting some dubious property investments on the Gold Coast.

As a result, he says, ordinary people trying to invest for their retirement have been bankrupted and financially ruined, "and unfortunately I am one of them."

"These people need to be exposed for what they are."

Unfortunately I just don't have the resources to thoroughly investigate the firm in question, which is why I haven't named it.

There's always a worry, when not naming a ripoff company, that you're tarring others with the same brush. In this case, though, I'm not too concerned. While some other computer share trading companies may be as clean as a whistle, I still don't think what they offer the public is worth having.

If readers stay away from the whole industry, that's fine.

One reason I feel confident to say that is the lack of response to my August challenge.

I said to the companies then: "Give me the names of half a dozen people who have been using your programme for more than a year and who are willing to talk about how well they've done."

No company has even rung to say, "How about talking to my grandma. She uses our programme."

Here, though, are a couple of other responses from readers.

Q. With reference to the reader's letter regarding share software, I must have been to the same promotional seminar, and I must have visibly blanched at the mention of $12,500 to buy the software plus a monthly fee of $125 to download stock data.

A New Zealand company is offering free sharemarket software, and the cost of downloading is approximately $3.75 per time.

Originally the software was developed for their use and is now offered free to anyone who wishes to use it.

No performance guarantees are given; it is up to the individual to use their own judgment. There have been seminars in Auckland where the use of the software is explained.


A. You know what they say about stuff that costs next to nothing. That's about what it's worth.

Perhaps I'm being hasty. It's certainly better to pay $3.75 a go than $12,500 plus $125 a month.

But you can still end up pretty seriously out of the money if you trade frequently, regardless of what you pay for a system.

If you come out profitably, after covering brokerage and taxes, you're one of the lucky ones. Most people don't or at least don't do as well as they "should."

Take, for example, another reader who got in touch with me. He uses the same system as you write about, or a similar one.

Through it, he's been investing in New Zealand shares for a year.

He spends about half an hour a day researching and trading, although "it can be a couple of hours when the market gets interesting."

On one share, he says, he made 86 per cent "over a very short term." Nice.

Overall, his return has been about 9 per cent, including dividends. "That's better than the bank," he comments.

Yes, but it's actually pretty poor, given the performance of our sharemarket over that period.

The NZSE40 gross (including dividends) index, of the biggest 40 companies listed on the Stock Exchange, rose more than 18 per cent. The gross index of middle-sized companies rose nearly 40 per cent. And the little companies index rose more than 54 per cent.

They're impressive numbers even if they represent growth from a low base. And they show that our trader could have done better in an index fund with far less hassle.

Q. In Money Matters of August 28 you challenged anyone who had used a share market forecasting programme to tell you of their experience.

Here goes. In late 1997 I saw an advertisement for such a programme operating in the Australian market. I had an investigation of the company carried out by a relative, experienced in such matters.

The company had offices in Melbourne, Sydney, Brisbane and London, and a reasonably extensive clientele. It was also well known to leading sharebrokers. I contacted the advertiser and received all the promotional data.

This programme dealt in options attached to some eight of Australia's leading and most liquid stocks.

The licence fee for two years use was $A6000 ($7650) and the capital required to start between $A6000 and $20,000. There was a guarantee of a refund if not satisfied after one year.

Although I still have options open and continue to trade, I have not used the programme since last March because of a computer crash and lost data.

After requesting a new set of disks I found the company had been placed in liquidation by Australian creditors and was no longer supplying the daily data needed to continue.

Fortunately, I had written claiming a refund before liquidation due to their failure to replace programme disks, and have now submitted proof of debt. I don't expect to get anything.

In my opinion the system was a genuine attempt to forecast from historical cyclic data.

Over time it may have worked. The cost to me has been approximately $A8300.

The saga is not over yet. The liquidator has found some evidence of possible fraud on the part of the owners, who had received licence fees well in excess of $A1 million.

I do not believe I am necessarily a true test of the programme as there were periods when I was unable to follow the recommendations.

One important point in all this is liquidity in the market place. Many of the losses were due to this and many gains that might have been made were missed because traders would not sell.


A. You're obviously a nice guy, giving those Aussie characters the benefit of the doubt.

You didn't always do exactly as you should have. Your computer crashed. Liquidity wasn't too good. If you'd been a good boy, and followed their plan perfectly, you might be rich today.

Maybe. But it doesn't sound to me as if the company deserves such a charitable attitude.

Your transgressions are likely to happen to anyone using such a system and the company is probably well aware of that.

It's one reason I'm wary of the guarantees sometimes offered. I suspect the company could wriggle out of them by pointing out that you didn't always do precisely what they said to do. But who would, over a long period?

You did some research before signing up. I can't fault you for that even though you didn't foresee its financial troubles, which can be hard to spot.

It's a pity, though, that you didn't look into the liquidity of the market too. Many a "good" investment has turned bad for investors who couldn't get out when they wanted to.

One more point: You say you think the system was "a genuine attempt to forecast from historical cyclic data." That may well be. But I've never seen a system that consistently predicts prices on the basis of the past.

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