When investors don’t make the expected money, they start to look around in search for websites which promise large gains. But are gains of 100%., 200% or even more realistic? Are those gains sustainable over years?

First of all lets look at some bench marks
Dow 11.3% over the last 20 years
S&P 12.4 % over the last 30 years
Russel 2000 4.8% over last 10 years
Warren Buffet (yes he is a bench mark!)

It's hard to overstate how successful Buffet has been. Starting with $100 of his own money in 1956, he's built a fortune estimated at more than $35 billion (U.S.). So value investing isn’t out of style. The average annual gain of his Berkshire Hathaway from 1965-2003: 22.2% p.a.
If you are beating the above then you should be happy. But are higher returns on a constant basis really possible?

Somebody who researched financial newsletters for years is Mark Hulbert . Hulbert is a "buy and hold" guy. So you might not like his investment style but his research is still quite revealing. He compares financial newsletter performance which he again publishes in a newsletter. He states that it is astonishing how many newsletters just disappear after some time.

Performance!? Do your own due diligence. Why? Because some newsletters advertise only with their good performance years. Let’s just take Fred Hager and George Gilder as example.
Hager advertises on his website:
It's official. According to the independent audit of the Hulbert Financial Digest, Fredhager.com has the #1 performing investment newsletter of 2004, up 154.8%.

Great you might think. But what you will not read on Hager’s website is that he lost 31.1% since the end of 1999 until 7/03. His portfolio was down 85% from its highs. That doesn’t sound too appealing any more. So, Fred Hager is a loser, right? Not so fast. He is around since 1986 and has weathered many storms. His average yearly performance since that time is still above the S&P 500.

George Gilder, editor of the Gilder Technology Report. After riding the tech bubble to dizzying heights, Gilder's letter lost an average of 41.3% per year since the end of 1999 till 2003. Gilder doesn't keep a "model portfolio", only a list of companies he considers leaders "in their field." This makes it practically impossible to track his performance. But when the tech bubble burst things went the other way. His stock picks lost up to 90% of their value. Ouch.

Some good examples Bernie Schaeffer who I call an honest contrarian offers 15 products of which 11 outperform the market greatly but 4 underperformed it. Timer Digest http://www.timerdigest.com/ has been monitoring Mr. Schaeffer since 1984 and ranks him as the #1 Long-term Market Timer for the last three years. Sy Harding was the no 1 gold timer for the last 12 month by Timer Digest. From 1998 through 2004, Sy claims that his Portfolio has produced compound returns of 127.7% versus 38.2% for the S&P 500. He uses a mechanical trading system and is only 4 to 8 months in the market.

What to avoid
You guessed it: some newsletters perform poorly because they focus just on one sector or market.
They outperform the market when the sector is in favour and then crash down when the reverse happens. When you want to invest in a certain sector compare how the newsletter has done compared to that index. The editor should be willing to give performance numbers. Find out when you can cancel your subscription. You can quickly sell your losers but you might be stuck with an unsuccessful newsletter.

Past performance is no garantee for the same or similar future performance!

What to look for 1. Track record: a newsletter can only be judged over several years. At least 5 years better more. With newsletters it is not different than with mutual funds: hundreds around but only a handful are outperforming the market.
A free month or a sample will just give you a glimpse.

2. Who is writing the letter. My advice: Some one who has been around for a long time.
Like Richard Russell or Dr. Richard S. Appel

3. Some one who can admit investing mistakes. Nobody is always right. Don't forget that.

4. Don’t get caught with names and hype. You could have made….and we only tell our subscribers how!

Newsletters are a big business Jason Hommel claims 13000 subscribers to his Silverstockreport who pay 39.95 per month. You do the math. According to Gary Rivlin Gelder made in the late 90s 20 mio per year with his newsletters. You probably understand now that some investment advisors retreated completely from managing money for clients but instead consecrate their full time to their financial publications. There is easy money risk free out there!

Danger of Stock Manipulation

In the late 90s Gilder would publish his newsletter and when he recommended new stocks they would go up immediately by 50%!
Thinly traded stocks are vulnerable to wide swings. Jason Hommel admits that the silver market is thinly traded. He is known as a good stock picker. But is it really his research or the 13000 subscribers who move a stock? In his newsletter of Sunday, Sept 18/05 he writes…On Thursday last Week, I sent out an email on IGMI. The next day, on Friday, IGMI was up 30% on small volume of about 150,000 shares. In case you missed that email report, you can find it here…

When to subscribe to a newsletter

Financial newsletters get probably the most of subscribers in a bear market, when things don’t work as they should. Investors are tired of their financial advisors, banks or brokers. That is the time when they become studious. When you are continuously underperforming an index you should consider subscribing to a financial publication. Every thing depends on the size of your portfolio.
If you have a yearly subscription rate of 1000$ and a portfolio of $10.000 then you are probably better off with an index fund or an ETF and some free publications.

There are alternatives out there

like the Kirk Report. The author asks for a simple donation for a peek into his portfolio. Bloggers are nice people because many of them share their investment highs and lows. http://gvest.blogspot.com/ http://bobsadviceforstocks.tripod.com/bobsadviceforstocks/ http://jaloti.blogspot.com/ We have on www.investingadvisers.com a bunch of free insightful newsletters.

Conclusion

There are no guaranties that investment newsletters will make you the big money. They are probably very helpful for your personal education but don’t expect financial miracles.
If any publication can beat the performance of a Warren Buffet then you should be more than happy and consider a subscription.
In case you didn’t know… there are no short cuts in investing.

Legal Noctice

This article may be reproduced without the written permission of www.Investingadvisers.com as long as the author, Detlev Eichler and the web site www.Investingadvisers.com are acknowledged. Changes to the article are not allowed.
The article is for entertainment purposes only. The author has not received any compensation from the companies mentioned above. Copyright © 2005

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