Reacting to Finance TikToks - Bonus Edition

Quick Overview

Richard Coffin, a registered portfolio manager, critiques several finance TikToks, debunking investment strategies involving high-risk assets like STRF, flawed technical analysis using EMAs, unrealistic covered call income projections, misconceptions about BlackRock's role in single-family home purchases, and dangerous debt collection advice, ultimately emphasizing that sustainable wealth comes from earning first, followed by long-term investing, while cautioning against pseudoscientific day trading courses.

Key Points: The TikTok suggesting $250 allocations in QQQ and VTI is flawed because these two ETFs have significant overlap, meaning the investor is making a concentrated bet on US tech-heavy large-cap companies, not achieving true diversification. STRF, advertised as paying a 10% dividend with downside protection, is highly risky because the payments are not backed by cash flow, leading to comparisons with a Ponzi scheme, and the shares lack face value, maturity, or a legal obligation for dividend payment. A day trading strategy based solely on 8, 21, and 50 EMAs is unreliable, as demonstrated by examples where stocks plummeted immediately after being above the moving averages, proving that cherry-picked historical segments can make any pattern look attractive. The claim that selling covered calls on a $1,542 initial investment can replace income within weeks is unrealistic; replacing $1,500 weekly income requires growing the capital base to $20,000 to $30,000, and covered calls cap upside potential while only slightly compensating downside risk. The assertion that asset managers like BlackRock get rich by taking real risk is incorrect; they primarily earn fees for facilitating investments without putting much of their own capital at risk, making them agnostic to whether the underlying investment crashes. Advice to ignore debt sent to collections because the damage is done and the debt might become cheaper is dangerous, as assuming the debt verbally can reset the statute of limitations, and ignoring it can prevent obtaining mortgages or credit in the future. Richard strongly advises against day trading courses marketed as simple formulas, citing Charlie Munger: "Show me the incentives and I'll show you the outcome," noting that sellers often use investor psychology as an 'out' when their simple systems fail.