Criticizing Market Letters

Ridiculing the value of investment newsletters has become increasingly popular. The initial criticism was begun by several newsletter publishers against competing newsletters. These criticisms were generally tolerated by those of us in the trade as a means of friendly competition. Perhaps, 24 years ago, criticism against investment newsletters became more authoritative with the publication of a new newsletter whose primary purpose was to rate the performance of a few dozen investment newsletters. Over the past 23 years, this newsletter gradually increased its scope to rating over one hundred thirty different investment newsletters, selected from over one thousand investment newsletters published today. The criticisms gained in momentum more recently as popular financial newspaper columnists picked up on the theme. The theme is essentially the same as that made by newspaper articles which ridiculed the value of mutual funds two decades ago. More than half of the investment newsletters are simply unable to perform better than the popular Stock Indices. 28 years ago similar criticism was leveled at mutual fund management after several new mutual fund performance rating services published their results revealing that only a small percentage of mutual funds they monitored were able to equal or better the performance of the popular stock indices, i.e. Dow Jones Industrials and Standard & Poor's. Those studies spawned the beginning of Index Funds, whose goal was to mirror the performance of the indexes. "If you can't beat them, join them." The Index Funds eventually lost their popularity as individual investors learned they could beat the performance of Index Funds by simply switching from one type of fund to another, buying and holding aggressive growth funds in bull markets, switching to money market funds during periods of high interest and declining stock prices, and switching again as investment climates changed. The popularity of investing in a growing number of specialized mutual funds continued to gain, notwithstanding the spate of newspaper articles which pointed out how difficult it was for fund managers to equal or better the performance of any of the other stock indices. The concept of individual investors pooling their investment capital in a fund managed by professionals for a small fee remained strong, and grew in popularity. Today mutual fund investing is more popular than ever before. Journalists who criticize the performance of market letters today are again missing the point. Most newsletter subscribers buy newsletters to obtain a steady flow of investment ideas in an investment area that interests them. Investors have to get investment ideas from somewhere. For the most part, their stockbroker is a salesperson, not a securities analyst. An investor with a broader scope of investment ideas is apt to choose many more successful investments than those investors with a limited scope of ideas. The newsletter subscriber ultimately does his own stock-picking. Again, the investor subscribes to market letters to obtain a large flow of sophisticated investment ideas. In this article, the author employs his knowledge of investment newsletters, based upon 39 years of marketing them, to discuss the real strengths and weaknesses of investment newsletters. Let's start with a brief history of market letters.

A Brief History of Newsletters Newsletters are much different than other media: newspapers, magazines, radio, television. Historically, they were primarily written by mavericks expressing nonconformist views for mavericks espousing those same views. Newsletters were the favorite medium available to revolutionaries to spread news and to rally revolutionary support - for the French Revolution, for the American Revolution and for the Russian Revolution. Today, newsletters are still the favorite medium for both the political left and the political right. In the worlds of business, science and medicine, newsletters cover highly specialized subjects, not usually covered by trade newspapers and magazines. In the field of health, for example, although there are several popular established newsletters published by the American Medical Association, the Harvard Medical School, the Mayo Clinic, Johns Hopkins Medical Center, and U C Berkeley Medical School, there are far more medical newsletters covering highly specialized subjects for medical specialists. On the subject of AIDS alone, there are dozens of underground newsletters providing AIDS victims and their families with their only source of news on experimental treatments both here and in foreign countries. In business, too, there exists an abundance of highly specialized industry newsletters, data processing newsletters and management newsletters...and most espouse nonconformist views.

About Investment Newsletters In the world of investments, newsletters serve a similar purpose. Although there are many general investment newsletters, most investment newsletters provide the only source of news in highly specialized areas of investing. They are the only source for data available to the public on charting, including Point & Figure Charting. Some espouse popular and unpopular investment theories including the Dow Theory, the Elliot Wave Theory, Kondrateyev Wave Theory, the Volume Reversal Theory, and much more. Some newsletters cover low-priced stocks only. Some cover non-NASDAQ OTC stocks. Some cover small start-up companies and new issues only; special situations; oversold high value stocks; high tech stocks; medical stocks; hard asset stocks; foreign stocks; turnaround situations; bankrupt company stocks; junk bonds and much, much more...all markets generally neglected by the established media. Newsletters also tend to recommend selling and even short-selling of stocks more than the other media. Also newsletters report on the rumors... takeover rumors, turnaround situations, undervalued asset plays, new products, technology and emerging growth companies before the other media report on them. Investment newsletters make many more forecasts and many more stock recommendations than all the other media combined, despite the newsletters' small numbers. In contrast, the other media - newspapers, magazines, radio, television - never cover the aforementioned specialized investment areas, make very few outright stock recommendations, and even general investment forecasts tend to be heavily edited. Among newsletters, the independently published newsletters featured in this publication cover the specialized markets, e.g. OTC markets, foreign markets, stock rumors, etc.; they tend to recommend stock sales and trades; their recommendations are straightforward. In comparison, stock brokerage newsletters, published primarily for their customers, cover mostly listed companies; rumors are usually edited out; recommendations are more hedged.

Who Writes Investment Newsletters? Although there are many investment newsletter writers whose stock picking talents are suspect, the relatively small group of investment newsletter publishers are more talented and more financially successful than any other group of human beings of which this writer is aware. Many of the newsletter writers became financially successful because of their publications. In this category would be included the late Arnold Bernhard, publisher of Value Line Investment Survey and listed among Fortune Magazine's list of the nation's 500 wealthiest men; Marty Zweig, publisher of the Zweig Forecast, and Charles Almon, publisher of Growth Stock Outlook, both of whom manage NYSE - listed investment funds and billions more; and many other newsletterers who manage funds with capital in the many hundreds of millions. One ex-chairman of the Paine Webber group now publishes a newsletter that tracks the performance of market timing newsletters. One newsletterer who used to write a high-tech newsletter invested his personal money in one of his own recommended investment ideas and became listed among Fortune's 500 Wealthiest by being one of the original financial backers of Apple Computers. Charles Schwab wrote an investment newsletter before becoming the nation's most successful discount broker. The Babson brothers, one of whom founded the Standard & Poor's Corporation and the other founded United Business Service and Babson College, both were among the most financially successful persons in their time and both started their careers as newsletter publishers. The late Sam Coslow, before starting his Indicator Digest newsletter, was one of ASCAP's highest paid music writers for songs he wrote for Bing Crosby, Johnny Ray and others. Jay Gottlieb, who wrote a special situations newsletter for many years, was keen enough to pick up one of the investment opportunities he recommended to his subscribers some 20 years ago. His recommendation was to invest in companies that retailed Personal Computers to the public. He founded the Computer Factory, which became a very profitable chain of computer stores whose stock listed on the New York Stock Exchange. He was also perspicacious enough to retire from the business and to completely sell his stock interests before the PC retail company market became glutted. Today, he is back publishing a new issues newsletter, richer by many millions of dollars. There are a great many more financially successful persons known and unknown to the author who were or are investment newsletter publishers.

Why are Newsletters Criticized? The basic business of investment newsletter writers is to forecast the future. Their primary job is to tell their subscribers when the basic momentum of the stock market slows and then changes direction. Their job is to alert their subscribers to dormant companies whose fortunes are about to change for the better...or conversely, to report on companies dominant in their industries or those considered as growth companies whose fortunes are about to change for the worse. A correct forecast can make or save a subscriber a fortune. It's easy to ridicule the prophet...and the critics are a plenty. On the other hand, all planning - short term and long range - for businesses, for weather, and for investors - depend upon prophecies. Sam Raeburn, a former speaker of the House of Representatives once said of his critics "It takes genius to build a barn; but any jackass can knock it down". Let's remember Sam's comment in judging much of the criticism leveled at the investment newsletter writers, whose task it is to forecast the future - which stock to buy and sell, and in which direction the market is headed. Who Reads Investment Newsletters? Successful investors. Iconoclasts. For almost 40 years we've sold subscriptions for thousands of different investment services to many hundreds of thousands of investors. I am proud to say that a great many of those successful investors listed in the Fortune/Forbes Wealthiest lists are among the subscribers we've serviced. SIE's customers - investment service subscribers - have included the most famous entertainers, founders and executives of the nation's leading companies, the most famous and successful investors in the nation. Of course, the majority of SIE's customers are simply very smart investors from all walks of life who seek a flow of sophisticated investment ideas and from which they will choose a successful market strategy and a winning portfolio of securities. As investors, I'd be willing to bet they are the most successful in the nation. And you're one of them!