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COMPUTER SOFTWARE WARNINGS FROM THE ASIC.    

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Little help from consumer affairs

We have been asked to list this comment by a site visitor who describes his experience in trying to get his money back after 'buying an expensive trading program.' He warns that "The Department of Fair Trading will not get involved in such cases because the item that was purchased is used to make a profit and thus cannot be classified as for personal non-business use."

Get-poor-quick software

by Bina Brown, contract writer to ASIC,  published in The Australian 7/8/1999

For $7500 or more you can buy share portfolio software which is supposed to enable you to control thousands of dollars for "merely five minutes of your time and a few mouse clicks."

"It doesn’t come much easier," the sales pitch of one product continues. Maybe not, but more than one purchaser is wondering if they could lose $7500 any quicker.

First the amount of money you control depends largely on how much you put into the market in the first place. Second, if you use the information the package gives to create and track graphs, it takes more than five minutes to make a decision.

Most of these programs use technical analysis methods to measure market behaviour. They then generate buy and sell signals based on current and historical share pricing. It is supposed to indicate to you after you have entered opening and closing share price data from the Australian Stock Exchange, when to buy and sell particular securities. They are particularly attractive to short term traders.

Mark X (Not his real name) claims to have spent hours setting up and downloading data from the ASX into one system every day since September (There is the five minutes per day theory gone.) Based on the data he has entered, in this case the opening and closing of the Top 150 stocks, each day he downloads recommendations generated by the software of up to 20 stocks he should buy that day.

The program then suggests he contact his broker, show them the recommendations and acquire the shares. Marks says that in 10 months the system has not picked one share that he would have bought in that time for short-term trading purposes.

Looking at some of the recommendations, you probably wouldn’t have either. On May 21, it said buy Alpha Health at 33c. They were then trading at 33.5c; they are now at 29c. On June 11, buy Alkane at 20c. They are were trading at 20c; they are now at 16c. One June 28, buy Resolute at 72c. They were trading at 74c; they are now at 66c.

The list goes on. There are a few winners, but nothing compared to the losers. And that was in a rising market. You have to ask why would you pay thousands of dollars for recommendations that you are then supposed to take to a broker. Why not go straight to the broker?

Mark’s package sounds very similar to Market Wizards, now in receivership, which claimed its software could pick winning options plays. Unfortunately its occasional winning recommendations was far outweighed by its large number of loss-making recommendations. This also cost $7500, for software that, according to a seasoned trader, was based on fairly straightforward technical analysis, the tools for which are available at a fraction of the cost and often free. Perhaps the company’s demise tells the story.

At least one of these distributors is using an interesting sales technique to hook customers. It puts you in touch with people who swear by the product and claim to have made a lot of money from it. But since Mark X parted with his $7500 he has been unable to contact that other lucky customer.

[MR 98/77]

This is the text of the ASC warning on computer investment programs

26/3/1998

The ASC today issued a warning for people to be careful if they buy computer programs which are marketed as an easy means of making money by trading in shares, derivatives, options and futures.

The ASC recently took action to stop some of these computer programs being marketed because the promoters were not licensed investment advisers.
The programs are in breach of the Corporations Law because they appear to give unlicensed investment advice and don't just provide factual information, but claim to interpret data using formulae and guidelines and give users advice or recommendations on investments.
A main feature of many of these software programs is the claim that they can make predictions about likely movements in prices of shares, derivatives or futures, by analysing historical data using mathematical formulae. Some programs even suggest when the user should buy or sell.
Many promoters claim their programs can help investors become successful traders and earn high returns with minimal risk.
These software packages are frequently advertised in newspapers and specialist investment magazines and are promoted as a system designed to educate people to trade in various markets.
People should look out for programs which include these features:

  • buy or sell triggers;
  • claims that the program will make users successful traders;
  • promises of high returns over a short period;
  • examples of reputed profits made by the promoter following the recommendations made by the program; and
  • high initial cost and requires the payment of ongoing fees for information to be updated.

Under the Corporations Law people giving investment advice must be licensed.

The ASC warned people who are thinking of buying these programs to check with the ASC by telephoning the ASC Infoline on 1300 300 630, to find out whether the designer and distributor are licensed to give investment advice.

For further information contact: John Pinkerton, Director Operations, ASC Regional Office (NSW), ph (02) 9911 2331

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