MicheleSpagnolo @MicheleSpagnolo: "𝗡𝗼: 𝗣𝗼𝗽𝘂𝗹𝗮𝗿 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗰𝗮𝗻 𝗻𝗼𝘁..."

Italy

𝗡𝗼: 𝗣𝗼𝗽𝘂𝗹𝗮𝗿 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗰𝗮𝗻 𝗻𝗼𝘁 𝗰𝗵𝗲𝗮𝘁 𝘁𝗵𝗲𝗶𝗿 𝗲𝗧𝗼𝗿𝗼 𝘀𝘁𝗮𝘁𝗶𝘀𝘁𝗶𝗰𝘀. I'm not very active on the social side of eToro, but today I decided to write a post about this because it keeps coming up in my feed again and again, and I think it is complete and utter misinformation. As someone with a significant amount of money invested in PIs, this is something I naturally worry about, so I hope my post can help others too. The story, according to those who keep spreading it, is that PIs can "cheat" or "fake" their public statistics on eToro to show unrealistic performances. The way that this cheating would happen is by smartly adding new money at the right time to somehow show more gains or "hide" the losses. Let me break down why this claim is just false. 1. The formula that eToro uses to calculate the public monthly returns is not a mistery, it's available here help.etoro.com/s/article/What-statistics-does-eToro-track-and-where-can-I-find-them?language=en_GB and it's been used since 2015 www.etoro.com/news-and-analysis/etoro-updates/new-user-stats-page/. It's a very simple formula and it doesn't take a finance degree to understand how it works. 2. The formula correctly accounts for deposits and widthdrawals. I have the feeling that many people who believe and/or spread this theory think that if a PI adds 10% new funds this month to their account, then eToro will register a magical +10% in monthly performance. That is literally *not* how it works. Deposits are subtracted in the formula and, except for the case I'll describe next, do not influence the monthly gain/loss calculation. Again, the formula is simple, you can plug in numbers and try it out yourself. 3. The only case when this formula becomes less accurate is when a big deposit is made at the *end* of a month. That's because by having E0 + D as denominator the formula is implicitely assuming (as is the case for most investors) that new deposits are added at the start of the month. Now, in theory (and I repeat, in theory) a PI could take advantage of this by depositing new money at the end of a bad month to reduce the calculated monthly loss. Why in theory? Because even if they did play this game, they would only reduce the calculated loss by the proportion of new money that they added. In practice, say this month I've lost 10%. I would need to double the funds in my account to half the calculated loss down to 5%. Oh, and the next time I'll get a bad month, I'll have to double the amount I've already double. And the next time double again. I hope you can see that it's completely unrealistic for any investor to use this trick repeatedly over a long time. Sure, if you're copying someone who just started, has no track record, and is toying around with 50 dollars, then they can probably pull that trick on you a few times. But then you should perhaps revaluate how you pick your investors. There's a reason why eToro requires investors to have at least 10.000 dollar in equity before they can apply for the PI program. Anyway, I hope that gave some clarity and will spare someone from the scare I got when I first read about this "PIs can cheat" conspiracy, before I looked into it myself. $SPX500 $NSDQ100 $BTC $CSPX.L (iShares Core S&P 500 UCITS ETF)

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