Blog - Investing Notes
January 25, 2010 - Dishonesty and Fraud?
In response to "The TimingCube Market Timing Advisory Service", a reader commented: "TimingCube's home page claims a 37% annualized return. In prior years, they advertised 100%+ returns. For the first year I followed them (2003), they did great. I told everyone about it. Their subsequent failure starting in 2004 though has taught me a lesson. You have to give a system two full years at least to see if will work. I wish I had done that. Every single person to whom I recommended TimingCube has left them. If you look at TimingCube's results page, you will see pure fiction. These are not the actual signals they put out, but instead the 'revised' signals that they backtested after the system failed a few times. I am surprised they are still in business. The SEC doesn't respond to complaints very well. Why? There are lots of TimingCubes out there. It would be like reporting a dishonest used car salesman... Dishonesty and fraud is what TimingCube is about. ...I wish you or someone would dig a little deeper and expose guys like this who misrepresent their results."
Presentation of backtested results, with trading frictions excluded, is common in marketing copy among informational services like TimingCube. It takes a degree of sophistication to understand the implications. The SEC apparently assumes that investors have this degree of sophistication, so disclosures and disclaimers (though generally much less prominent than marketing claims) protect the offerors.
Over and over again, CXOadvisory.com, in both general commentaries and specific reviews, cautions about the bias involved in hypothetical backtests and about the potentially material impacts of trading frictions on returns (and sometimes the incredible extrapolations of very high returns). Over and over again, reviews point out that the disclaimers made by informational services conflict with the representations in their marketing copy. See Investing Demons for a comprehensive synthesis.
It is difficult to understand why people ignore the flat disclaimers of usefulness and rigid disavowals of any warranty these services include on their sites. Would these same people buy cars or appliances with no performance guarantee (no warranty)?
The SEC will act on hard evidence of intentional deception. See "What About Dan Murphy?" and "Safe with Martin Weiss?" for examples. If you have hard evidence of misrepresentation, lodge a complaint with the SEC or with your state consumer protection agencies.
Specifically, "The TimingCube Market Timing Advisory Service" uses older (and less prominent) trade data that TimingCube claims is not backtesting but live signals. Findings appear not to conflict with those cited in MarketWatch to Hulbert Financial Digest, which employs real-time testing with trading frictions. The CXOadvisory.com review also quotes TimingCube's disclaimer that their service is of any use and flat denial of warranty.
Note that, depending on the frequency with which a trading system generates trading signals, the duration of the signals and any implicit relationship between the system and market/economic conditions, statistical confidence (to the extent such confidence is achievable at all) may require sample periods much longer than two years.
