Investments Seminars: What you need to know

Here’s the thing about Calgarians: we aren’t afraid of risk, and we like to make money.

This is a bit of a generalization, but we can safely argue these are the principles on which Calgary’s business community was built. And it’s an attitude that trickles down to the rest of us; risk and reward go hand in hand, and everyone deserves a shot at the big time.

So, it’s no surprise that Calgary is a key stop on the financial seminar circuit. During any given month, you can attend seminars on investing in Antigua or Arizona, on beating the stock or real estate markets, on making your mortgage tax deductible or on becoming a “Millionaire Mind” or “Rich Dad.”

The question is whether there is such a thing as an investing seminar that benefits the attendees more than the people making the presentation. We’ve all heard of the friend of a friend who got sucked into the gazillion-dollar Ponzi scheme that used seminars to draw people into investments in non-existent gold mines. And then there are less-clear cases like Shire International Real Estate Investments, the Calgary-based company that during the last boom sold investments into condos in Hawaii, Fort McMurray and several other places. Those condos were reportedly never built and Shire is now being investigated by the Alberta Securities Commission.

Of course, not all seminars are created equal. Some are bad ideas, others encourage insanely risky behaviour and, to be fair, some are useful.

Most people think investment scams target the elderly and most vulnerable. To counter that idea, I offer the story of Jason Dunn, a 30-something lifelong Calgarian, prolific blogger and generally smart person. To make a very complex story simple, after attending an investing seminar, Dunn borrowed $50,000 against his home and bought a stake in a strip mall, Castleridge Plaza.

It doesn’t sound that bad on the face of it, right? But Dunn and the other investors didn’t really have any idea what was going on under the surface. Whether the mall had been bought at fair market value or was being well managed. Dunn and other investors now believe it was neither. Dunn had invested through Concrete Equities, the now infamous Calgary real estate syndicator who promised investors returns it couldn’t keep and has since gone into receivership. Now, Dunn isn’t sure exactly how much of his money he’ll get back.

Dunn cannot figure out what he was thinking. “As someone who routinely spends hours researching which digital camera or laptop to purchase, in retrospect I’m shocked that I didn’t do at least as much research when selecting a company to invest my money in — especially when I was investing 10 to 20 times more money than I’d ever spend on a camera or laptop,” he says.

So why do smart people get scammed?

According to the Alberta Securities Commission, 12 percent of people who are approached by financial scammers become victims. For Bruce Sellery, a financial journalist formerly with CTV’s Business News Network and author of the upcoming book, Moolala: Why smart people do dumb things with their money and what you can do about it, that’s because people don’t think rationally when it comes to their money.

“They are oblivious to the consequences,” says Sellery, who, for the record, also gives financial seminars at the University of Calgary on how not to be stupid with your money. “Sure, greed is a factor, but more often people just don’t think through the promise of 50-percent returns with no money down.”

Over a three-week period last spring, I attended three free investing seminars: one spun off of a book, another put on by some guys who were making a bet the United States real estate market is going to make an epic comeback and a third offered by a bank. With Sellery’s help and expert analysis, I wanted to figure out what they’re selling, how are they making their money and how sound is the investment or idea they’re pitching.

Buying and flipping property: Rich Dad Poor Dad

Almost everyone has heard of Rich Dad Poor Dad. This series of books has sold tens of millions of copies and its author, Robert Kiyosaki, has been on Oprah and has co-written a book with Donald Trump. It won’t surprise anyone to hear that Kiyosaki is no longer pushing his ideas in hotel conference rooms in northwest Calgary. In 2006, he licensed his brand to another company, Tigrent, which runs the seminars.

The star of the show at the Calgary seminar was a middle-aged, medium-tanned guy in a spiffy suit. Mark Preston, a former construction worker, now turned real estate investor, started spinning tales of his real estate successes. Every single person in the room knew he was there to sell something. But he had the aura of the coolest guy in the room. You wanted to agree with him, even if he might be talking nonsense.

The gist of the Rich Dad Poor Dad seminars is to invest in real estate with borrowed money, either to flip the property in a hot market, or rent it out, thereby earning a passive income. The goal is to find someone, anyone, to finance your deals so you don’t have to put down a nickel, but can still cash in later down the road. The only problem is it’s unclear just how that financing is done.  

Which is exactly the point of the initial Rich Dad Poor Dad seminar. The seminar provides some information, but not enough to build an investment strategy on. In fact, this seminar seems to act mainly as a sales pitch for more seminars, specifically a three-day course held the following month. It costs $995, but was half price that night. Oh, and you and your spouse or partner can go together for another $495. And if you sign up right there, Preston would toss in a DVD set worth several hundred dollars.

Throughout the seminar, people jumped out of the seats to sign up for the paid course, and although some may have been plants, Preston was an effective salesman. And the three-day course was just the beginning of the pitch, Rich Dad Education sells coaching and more courses for upwards of $10,000.

Sellery found this event to be disturbing. “The sales pitch wasn’t really my style — encouraging people to rush to the tables as the clock ticked,” he says. “I was concerned for the people in the room who might pursue the strategies he espouses. Sure, real estate can be a great business. But it can be a risky business.”

The Bottom Line on Rich Dad Poor Dad : The company behind these seminars had sales of $170 million in 2009, 83 percent of which came from Rich Dad courses. As a business, it beats the hell out of flipping real estate. At the end of the day, the free Rich Dad is a sales pitch, not free advice. What you might get from the paid seminar is unclear, which is the point.

Rich Dad, Poor Dad seminars have come under scrutiny many times in the media, most recently by CBC Television’s The Fifth Estate, which took hidden cameras into a $495 three-day seminar held in Toronto, and then confronted Kiyosaki with a laundry list of complaints. After a fairly half-hearted defence, Kiyosaki admitted that even he was upset about the seminars, specifically about complaints from attendees and the sales tactics of some of the instructors.  He said he was trying to get out of the licensing contract with Tigrent. In fact, that agreement was restructured in late May, with Kiyosaki changing his stake in the company in exchange for more oversight over the Rich Dad brand. As well, Tigrent promised to be better. “New standards of excellence” was the term used, but you get the point.

Buying real estate abroad: Optimus U.S. Real Estate

If Rich Dad was big and brassy and pushy, the Optimus U.S. Real Estate fund was the opposite. It was held in a totally anonymous downtown hotel, in a smaller room, with seating for about a dozen people, and snacks. No one was there except me and one other guy, and four people whose job it was to sell the fund. It was a little awkward for all concerned.

Optimus wants to raise $30 million to buy real estate in the U.S. It’s interested in condos in Las Vegas and Phoenix, as well as commercial properties in Dallas, Austin and Denver.

Optimus has raised enough money over the past year to buy 50 “broken condos,” which are condos that were built before the market crash
in the U.S., but were never sold. Optimus paid an average of $62,500 each for 18 entry-level condos in Vegas and has rented out most of them. The plan is that the value of the condos will double or triple in the next seven years. If that happens, investors can potentially earn a 27.5-percent annual compound return over the period of the fund. In the meantime, though, you can’t get out.

Is it a good idea?
Jay Butler, a real estate professor at Arizona State University, says there are lots of condos in Phoenix that are being bought in bulk, sometimes at 20 cents on the dollar. If you buy cheaply enough, you should be able to make some money. But who knows just how much.

“I tell people that you can dream any scenario you want, but we’ve never been here before, so we don’t know what’s going to happen next week,” Butler says.

The most important thing to note about the Optimus Fund is it operates in the exempt market. The idea behind the exempt market is to provide up-and-coming companies running on a shoestring budget a way to raise money without the hassle and expense of a public listing. The only problem is that means investors are meant to do their own research and be able to withstand potential losses. In fact, investors are supposed to have assets of $1 million, not including the value of their home, or an annual salary of $200,000. Those conditions weren’t mentioned at any point in the seminar.

That should set off alarm bells, says Sellery. “It tells us that this is a risky proposition,” he says. “If you need to be someone who has that much downside protection and can take the hit if something goes bad, then it is risky.”

The Bottom Line on Optimus U.S. Real Estate: The Optimus Fund is looking for others to foot $30 million so they can roll the dice on U.S. real estate. Those who have time and are able to hazard the risk could win big or lose big. We’ll know in seven years.

Cashing in on the stock market: TD Waterhouse

TD Waterhouse is part of TD Canada Trust. Waterhouse makes some of its money from commissions from trades, so it’s clearly happy when it brings in more clients who like to trade. The more, the better. A free seminar it offered on technical analysis was meant to help build that client base.

Technical analysis is a way of analyzing stocks based strictly on their trading patterns. Technicians don’t care too much about earnings, or management, just what the charts say. Technical analysis generally leads to lots of trading, so it’s in TD’s interest to help clients who want to play the market that way.

The TD employee who ran the free seminar I attended admitted early on he wasn’t going to make anyone a million dollars and that, if he could, he wouldn’t still be working there. Then he went on to talk about moving averages, trend lines, signals, gaps, death crosses and candles. I could go on and on. It’s very mathy and pretty interesting if you’re a numbers geek. The idea is that, with the right math and charts, you could outwit the markets. It’s a wee bit risky, and probably not for anyone but an egghead.

TD was very straightforward about why it was holding the event: it wants to win clients. And you can’t fault it for that.

“I think they’re harmless. They want to attract active traders; that’s a profitable niche for them,” says Sellery. “So it follows that they would develop seminars that provide something that is value-added to that particular niche.”

Having said that, Sellery isn’t the biggest fan of trading stocks. For the average person, he thinks you should do a whole bunch of things before you try to beat the market, such as eliminating any debt, making sure you’re saving 10 percent of your annual income every year and ensuring the investments that you do have are, at the very least, matching the benchmark index and performing just as well as similar investments.  

According to Sellery, some of these investment seminars that I’ve been to skip past these basics  of money management to focus on a potential payday.

The bottom line is most people have more urgent priorities they need to address before they try any of these complex and risky strategies.

That’s especially good advice if you’re swimming in debt or hoping to make a few slick moves and find yourself on financial easy street. Sure, it’s a lousy cliché, but that old idiom is very much true: if it sounds too good to be true, then … well, you know the rest.