Men lie but numbers don’t. If you are going to invest in a stock, a cryptocurrency, or maybe a financial tech company, it is generally a good idea to demand to see performance numbers. Don’t just listen to the hype. Sadly, all a new cryptocurrency seems to have needed this year is AI (for artificial intelligence) in its name in order for the price to go up! On the other hand, sometimes the numbers lie too. We suggest that an investor should beware of hypothetical fintech performance after reading about how the SEC charged Titan Global Capital Management USA LLC with using totally hypothetical performance data in its advertising to promote fintech companies.
Any company that offers financial services generally offers a disclaimer. This disclaimer says that past results of an investment cannot be relied upon to predict future results. Anyone who has watched the crypto markets over time can attest to the fact that markets go up and markets go down. Likewise, financial tech companies working in the TradFi world or the DeFi world, or both, may have had a couple of great quarters. But that does not mean they will do just as well or better going forward.
Why Titan Global Is in Trouble
Titan Global is in trouble with the SEC because they made up the numbers that they used in their advertising. Let us say that the stock of a company goes up one percent in one day. Now the company tells investors to expect a one percent per day growth rate going forward. They imply that with such a rate of growth the stock will be worth ten times its current value in a year. The numbers are correct but the assumption of continued growth every single day is a fantasy at best and more likely an out and out lie.
It appears that Titan Global used hypothetical profits based on three cherry picked months of experience. It would have been OK to tout those three weeks. What got them in trouble was projecting growth and profits going forward based on those numbers and then not explaining this to their potential customers. What they were touting was a 2,700% annualized return based on the projection that they would have the same rate of performance over the following year. Since they were advertising weeks and months after those three stellar weeks it was clear that they knew their “hypothetical” numbers were non-hypothetical lies.
If an Investment Is Too Good to Be True…
The saying goes that when something seems too good to be true then it probably is not true. The odds of there being an investment that no one has heard about that is providing a twenty-fold return on investment for a year is generally pretty low. Nevertheless, investors get greedy and pile into investments that are little more than an attractive story. This goes on in the world of stock investing as well as in the crypto, DeFi, and FinTech worlds. A sound bit of advice is to never invest in a company unless you fully understand what they do to make money. And never invest in that company until you understand how their business model is extremely likely to keep producing those returns on investment far into the future. This is the intrinsic stock value approach. When the only evidence that an investment is a great deal comes from their own advertising, run the other way as fast as you can!
SlideShare Version – Beware of Hypothetical Fintech Performance