Four examples of ways to lose money; Why leveraged ETFs are certain to be big money-losers over time; Avoid Hims & Hers Health; The Scammer's Manual: How to Launder Money and Get Away With It; John Oliver on U.S. sports betting

My two highest priorities in my daily e-mails are sharing ways to make money and warning about ways to lose money. Today, I'd like to give four examples of the latter...

1) Other than meme coins and 0DTE ("zero days to expiration") options, it's hard for me to think of a faster way to lose money than these single-stock leveraged exchange-traded funds ("ETFs"), as this Wall Street Journal article from last week highlights: Billions Flowed Into New Leveraged ETFs Last Year. Now They're in Free Fall. Excerpt:

Investors who loaded up on funds that double down on their favorite stocks were rewarded with record highs. Now they are facing the downside.

Several popular leveraged exchange-traded funds, which use borrowed money to amplify their bets on one or more asset, have erased most of their value in a matter of weeks. Among the worst performers: A fund that offers investors twice the exposure to shares of MicroStrategy, the software company-turned-bitcoin collector, has plunged 83% since touching its November high. Another ETF, which offers similar leverage on Tesla, is down 80%.

"I've been literally sick to my stomach," wrote one user on a Reddit investing forum who said they bought 200 shares of a leveraged MicroStrategy fund for $200 each on the day the shares peaked in November. On Wednesday, the shares closed at $29.80.

Leveraged ETFs emerged last year as one of Wall Street's favorite roller coasters, as investors sought out ways to take bigger risks during the stock market's rally and money-management firms launched a bunch of new funds that capitalized on this demand. Assets under management in leveraged ETFs jumped by 51%, to $134 billion, in the 12 months ending Jan. 31, according to Morningstar.

I've been warning about leveraged ETFs for nearly two decades and am sick to my stomach at how they've grown. Most investors don't understand the inevitable mathematical decay built into these funds, which means they're almost certain to be big money-losers over time, as the article notes:

But over a period longer than one day, returns begin to differ substantially. The Nasdaq-100 index has risen nearly 20% since the end of 2021, while the fund that offers leveraged daily exposure is down more than 25%. That is because it still hasn't recovered from steep losses suffered in 2022, when a Nasdaq bear market sent the leveraged fund down more than 80%.

Morningstar analyst Jeffrey Ptak is concerned not all investors fully appreciate how quickly or severely leveraged funds' performance can veer off course. "These products have become very popular, to a worrisome extent," he said.

2) Most of my warnings to avoid losing money are about stocks – and there are several reasons to avoid telehealth company Hims & Hers Health (HIMS), including this story from the WSJ: They Wanted a Quick Fix for Hair Loss. Instead, These Young Men Got Sick. Excerpt:

Mark Millich, 26 years old and insecure about his thinning hair, was curious about the ads he saw promising to reverse his hair loss. He completed a 14-question intake on Hims.com and received a bottle of finasteride pills days later. He never spoke to a doctor.

Soon after taking the medicine, Millich said he felt strange symptoms. He woke up one day anxious, dizzy and slurring his words. Later his libido plunged, and his genitals shrank and changed shape. His doctor said the symptoms were caused by the drug. His wife, Marie Linne von Berg, said the symptoms upended their lives.

Finasteride, the generic name for Propecia, is a popular hair-loss treatment that has been on the market for three decades with potential side effects including sexual dysfunction and depression. But a new generation of young men are discovering the medicine – and its potential risks.

That is largely because they are peppered with ads on social media pitching hair-loss medications from telehealth companies, which unlike drugmakers aren't required to disclose side effects and other risks in advertisements.

It won't take long for stories like this to spread on social media and hurt Hims and Hers' business. But the main reason to avoid it is because the business – and the stock – have been driven by selling cheap, nonbranded obesity drugs:

It is a loophole telehealth companies have long exploited to sell medicines. More Americans became aware of it during this year's Super Bowl when Hims & Hers Health ran an ad that promoted a weight-loss drug without noting side effects. Two U.S. senators, one of them a physician, protested to the Food and Drug Administration. Telehealth companies say they disclose side effects and other risks on their websites.

Hims last year had $1.5 billion in revenue from more than 2 million customers. The company has a market value of roughly $7.5 billion, even after falling last month on news that it might not be able to continue selling its version of Ozempic.

Due to a shortage of branded weight-loss drugs like Zepbound, Ozempic, and Wegovy last year, the U.S. Food and Drug Administration ("FDA") approved for cheaper alternatives to be temporarily made and sold.

However, the FDA has now declared the shortage is over and drugmakers must stop producing these alternatives. (This is a problem for patients who can't afford the branded versions, as this article details: Patients scramble as cheaper obesity drug alternatives disappear.)

Sure enough, HIMS stock dropped 22% overnight when the company acknowledged it would have to stop selling compounded Wegovy.

The stock has continued to decline and closed Friday at $34.75, but that doesn't mean it's cheap. It's still more than 200% above its 52-week low of $11.20 and, with a $7.7 billion market cap, trades at 5 times trailing revenues and 65.3 times trailing earnings per share.

3) Another way to lose money quickly is to get sucked into an online scam – and they are everywhere. The most common are related to romance or get-rich-quick schemes. So much money is being stolen from so many people that there's an enormous operation to launder all of it, as this front-page story in yesterday's New York Times documents: The Scammer's Manual: How to Launder Money and Get Away With It. Excerpt:

The F.B.I., China's Ministry of Public Security, Interpol and others have tried to combat scammers, who ​often lurk on social media and dating apps, luring people into bogus financial schemes or other ruses. Telecom companies have blocked numbers. Banks have issued repeated warnings.

Yet the industry persists because its money-laundering operation is so efficient. Unsuspecting victims worldwide lose tens of billions of dollars each year, money that must be scrubbed of its criminal origins and deposited into the legitimate economy. The money-laundering system is so hydra-headed that when governments strike it in one place, it pops up in another.

This underworld peeks out in the Cambodian capital, Phnom Penh, home to a global clearinghouse for money launderers. It can be glimpsed, too, in the coastal city of Sihanoukville, a notorious refuge for fraudsters. Scammers ply their trade from call centers, operating in fortified compounds or on the upper floors of unfinished high-rises. Seaside restaurants are packed with money launderers and other criminals doing business over spicy Chinese food.

We obtained a cache of documents, a kind of money-laundering handbook, and spoke to nearly a half-dozen scammers and their launderers. The documents are not linked to any one scam or victim but reveal a method for moving illicit money that has proved all but impossible to stop.

Many times a day, I get an e-mail, text, WhatsApp message, or Facebook message that tries to entice me into a conversation. I never reply – I just delete it and, if possible, report it as spam or a phishing attempt.

You need to be so careful out there, as scammers are getting more clever all the time. If something sounds too good to be true, it almost certainly is!

4) Kudos to John Oliver for warning about how easy it is to become addicted to sports betting in this segment of Last Week Tonight:

It's an especially big problem with young men, as detailed in this Guardian article: John Oliver on US sports betting: 'It shouldn't be this easy to lose this much.' Excerpt:

Oliver said that 1% of US adults now have a severe gambling problem while 2-3% have a mild or moderate problem. That's 7.5-10 million people.

He said that it's "not a tragic side effect of this industry, it's based into the business model" and "betting until all your money has gone can be scarily easy to do when the casino is literally inside your pocket."

The industry also finds ways of "weeding out winning customers" but this same data "could presumably identify those with addiction problems and direct them toward help."

He added that "every part of this system is set up to reel gamblers in and keep them playing" and advertising connections have meant that "everyone in the sports world has now become compromised by an industry that is able to prey on its most vulnerable customers with incredible precision."

The ease of playing means that people can hemorrhage money throughout the day. "It shouldn't be this easy to lose this much," he said.

My advice about sports betting is the same as that about cocaine: Given how easy it is to become addicted, avoid it altogether.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.