Don't Get Fooled in School

You wouldn’t think that financial dangers lurk in the halls of colleges across the country. Institutions of higher learn are known for teaching well studied and rigorously tested investing methods. How could someone possible teach classes based on outright lies with no questions asked about the veracity of curriculum. That is exactly what is happening through a host of well-meaning continuing education programs.

I stumbled upon this arena of bad advice thanks to a call from a radio listener. He wanted to know if we knew anything about a “continuing education” class being taught at a local community college entitled, “Building Your Financial Portfolio on $25 a Month.”

It wasn’t the title that concerned the caller, saving and investing regularly can build wealth, it was the detailed information that followed: “Learn how to safely turn $25 a month into $100,000 in 10 years…” He was right to be uneasy. To grow $25 per month into $100,000 in just a decade would require an annualized return of over 50%. Certainly not something that anyone could claim to accomplish “safely.”

After quick call to the Kent, WA community college in question, this secret wealth building technique began to unfold. It turns out that almost anyone can apply to “teach” a continuing education (adult education, life-long learning, etc.) course. Little or no vetting is done. Claim to be an “expert,” show off your book, share a few “testimonials” and you’re a "teacher." In most cases, those making the instructor selection have no experience in the topic being taught (particularly financial topics).

This particular class was being conducted by a couple from Sacramento, California, Bonnie and Eric Christensen. They pair have penned a number of self-published, self-help books including “Writing, Publishing & Marketing Your 1st Book (or 7th) on a budget,” “Fly Fishing For Fun,” and many others, including their “best seller,” “Building Your Financial Portfolio On $25 A Month” (soon to be retitled “Building Your Financial Portfolio On $50 A Month” - still doesn't help their case). From what I can tell, the couple’s investing and financial experience is limited to their own portfolios and working in various capacities (none involving investing) at local banks. They travel the country conducting paid classes on safe, high-yielding investing. Is this a great country, or what? 

For a list of upcoming classes go to http://www.booksamerica.com/Seminars.html (the Kent, WA class has been cancelled).

After 30 years in the investing industry, I was dying to know what incredible (and safe) opportunity I had been missing all of these years. What could deliver average annual returns of almost 20% (based of their best-case revised claims of $50 per month over 20 years) to more than 50% (at $25 a month over 10 years)? Heck, I couldn’t even find an aggressive trading strategy that claimed a return that large. So, I both bought their book (which I had to get used because Amazon doesn’t sell it new) and called to discuss it with Bonnie.

Neither the book nor the interview proved particularly enlightening. The basic concept is both well known and sound. The Christensens are suggesting a strategy that they claim is espoused by the Wall Street Journal; purchasing a few stocks in old, proven companies using direct purchase and dividend reinvestment. So far, so good.

Now, the big question: Which stocks will generate substantial double-digit returns over the next 10 years? The answer: Companies that are about 100 years old and have always recovered quickly from recessions, based on Value Line reports.

How about some names? Christensen recommended the following 10 stocks: 

* 10-year average annual return with dividends reinvested through 2/28/14 Source: Morningstar
** approximation based on monthly additions compounded quarterly at average annual return figure

As you can see from the table above, none of those has even come close to a 50% annual return over the past decade. Christensen suggested that the past 10 years aren’t the best indicator of potential because of the recession of 2008. However, her claims (since 1997) have assumed investing $25 a month for 10 years.

Is there even one stock that has provided the returns needed to validate her claim? “Church and Dwight (CHD),” she suggests. “Over the past 20 years… [average annual return] was actually 83.5% per year.” Wow! At 83.5%, your $25 monthly investment would have grown to more than $100,000. In fact, you would have turned a total of $3,000 invested into more than $850,000!

If this level of investment return is possible, I’m using her system! So, I consult Morningstar again and find that CHD has posted a very impressive 16% average annual return over 20 years (through 12/31/2013) and an even more impressive 18+% annualized return for the past 10 years. However, 18% is a far cry from 83%.

Investing $25 a month in CHD over the last decade would have built you a portfolio worth $8,627. Just $91,373 short of our target.

How could she explain the discrepancy? Her answer was not a very good one. “Your numbers are wrong!” she defiantly exclaimed. She stated that my numbers must not have included reinvestment.

When I assured her they did and that my source was Morningstar, she told me that she didn’t trust them and went on to explain that her figures came from tedious hand calculations by “mathematicians.” My guess is that Christensen has been making some basic math errors for over 16 years. As she stated at the beginning of our interview, “I am terrible with numbers…”

I guess that Christensen means well. She can’t possibly be making a fortune on $45 admission fees and $18 book sales. The issue is one of apparent incompetence. She is teaching something she doesn’t understand well (and her book bears that out) and withers under any scrutiny. Yet, she is still allowed to teach a class under the implied endorsement of  respected colleges.

Using the “$25 a month” system, espoused by Christensen, is not likely to cause any serious hard to those who use it. In fact, most disciplined investment systems are better than none at all. Certainly, use of the word “safely” is wrong. Student's expectations will almost certainly be far too high, but they are likely to make money over time.

My biggest concern is the fact that these institutions of “higher” education are allowing classes of dubious value and outright false claims to be offered under their auspices. In a future piece, I will share some of the continuing education courses I have discovered (totally randomly) being “taught” by brokers and insurance agents with questionable skills and self-serving agendas.