Mutual Funds

Why Do We Read Investment Newsletters?

Investors use newsletters because, frankly, who's got the time to research all the zillions of stocks out there? I certainly don't. But newsletters should not be a panacea. One should still use one's noggin in assessing the advice from the pundits.

Mark Hulbert, publisher of the Hulbert Financial Digest, points out that long term sustainable gains attain an upper limit in the 20% to 25% per year range. He came to that conclusion after examining the published recommendations of over 150 newsletters over fifteen year periods.

His newsletter is unique among investment newsletters because it does not analyze stocks, mutual funds or other investments. It looks only at investment newsletters and rates them.

Even though some newsletters may exceed that 20% to 25% return by a large amount in any particular year, over the long term, says Hulbert, there seems to be a "practical maximum long-term return".

A striking example is the much touted Granville Market Letter. Joe Granville achieved much fame and glory when his newsletter's picks returned 89.4% in 1997, the best performance by any newsletter Hulbert tracked. Granville did even better in 1989 when his stock picks returned 367.9%. But here's the kicker. For the fifteen years to the end of 1997, in spite of those two fantastic years, Granville's return was a 24.6% annualized loss! (Didn't hear Joe mention that number, did we?)

Hulbert bluntly states that if you see a newsletter pundit advertising returns in excess of 25% annualized, "either the performance being advertised was produced over a very short period of time and is unsustainable, or the advertisement is lying".

The best newsletter to the end of 1997 according to Hulbert was The Prudent Speculator with an annualized return of 18.6% over fifteen years.

Although they may be hard to find, a good newsletter can help us in our research of stocks and in managing our portfolios. Hopefully these pages will help investors sort the wheat from the chaff, newsletter-wise.


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