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This is why you study the business first, the stock second



November 29, 2009 – Comments (6)

'Morning all,

TechCrunch's Michael Arrington takes apart Video Professor's business model in this raw, heated post. Give it a read, and then ask yourself these two questions about each of the stocks you own:

1. Do I know how this company makes money?

2. Is ignorance or stupidity required to make a sale? 

You'd be surprised how many companies depend on number two. Take banks. Credit card profits are often derived from the gullible. Don't believe me? Look at the fine print of the next credit card offer you get in the mail. You might see something like this:

"Balance transfer fee applies, minimum $5."

Anyone doing back-of-the-napkin math will quickly find that no one ever pays $5 for a balance transfer. These so-called deals instantly charge 3-5% of the balance. Thus, at 3%, you'll hit $5 after the first $167 transferred. Anything more and you're in bonus territory -- as in, a bonus for your creditor.

Don't get me wrong; I'm not calling banks out as scammers. Well, okay, maybe some banks. More broadly, I am saying that some credit cards are scams, and some public companies depend on scams for profits. We know because we've found and written about more than our share.

One of the best at this is my colleague Seth Jayson (TMFBent). He's a skeptic in the very best sense, and as a consequence he's outed craptastic ideas like this one. We should all be as diligent. We should shout from the rooftops when we find businesses built to bilk, and then short the living daylights out of them.

Thanks to Michael Arrington for reminding me of that. 

FWIW and Foolish best,

Tim (TMFMileHigh and @milehighfool on Twitter) 





6 Comments – Post Your Own

#1) On November 29, 2009 at 10:11 AM, TMFMileHigh (77.13) wrote:

By the way, each comment to this and every other post at from now through Jan. 10, 2010 earns $0.10 for a great charity. Let's make the Fool pay up for a good cause.

Foolish best,

Tim (TMFMileHigh and @milehighfool on Twitter)


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#2) On November 29, 2009 at 10:52 AM, meganchip (92.55) wrote:

Since I work in the non-profit field I applaud this type of support. Comment comment comment and always study up on the charities that you support just like companies you invest in ... philanthropy IS an investment.

Loved Michael Arrington's blog. Gotta hand it to the Video Professor people, though... seems like they were able to make this scam work long before there was fine print on the internet. 

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#3) On November 29, 2009 at 11:04 AM, djkumquat (39.65) wrote:



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#4) On November 29, 2009 at 12:58 PM, Teacherman1 (< 20) wrote:

Foolanthropy on.

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#5) On November 29, 2009 at 1:41 PM, TMFMileHigh (77.13) wrote:

Ka-ching! That's $0.50 for a good cause, Tom and David. Pay up. (Grins.)

Thanks, all. Any thoughts on shorting as a market-centric way to weed out the worst stock ideas?

Foolish best,

Tim (TMFMileHigh and @milehighfool on Twitter) 

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#6) On November 30, 2009 at 5:06 PM, XMFCrocoStimpy (97.51) wrote:

And yet somewhere there is a jury that would convict us if we piloried the Video Professor shills.....

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