Financial Newsletters And Empty Promises

The best advice I could give someone getting into stock picking is to think for themselves, and avoid advertisements of financial ‘gurus’ who want to share the light—for a fee.

When professors John Graham (University of Utah) and Campbell Harvey (Duke University) tracked more than 15,000 stock market newsletters from June 1980 to December 1992, they found that 94% of them went out of business during these dozen years of a bull market.

Why follow the stock picks of newsletters when their comparative mortality rate is higher than a minnow’s in a piranha tank?

You might wonder about the newsletters with staying power. Perhaps they’ve gone on to beat the market, as many purport.

In the January 2001 edition of The Hulbert Financial Digest, Mark Hurlbert revealed the results of 160 stock market newsletters that they deemed respectable. But of the 160, only 10 of them had recommendations that beat the market over the previous 10 years. That’s fewer than 7%.

But what I love most is the selective advertising. Let’s take George Gilder’s newsletter as an example we can roast over an open fire. He’s the one currently advertising this on his homepage:

“The technology portfolio that gained 155.8% in the last 3 years”

Rookies to stocks might find this enticing. But the wise would dig deeper. Gilder has had a stock touting technology report since 1999. And let me put his 155.8% total 3 year gain in perspective.

My investment club had a membership to Gilder’s ground-breaking brilliance eleven years ago. If you followed Gilder’s advice from his earliest report, throwing your faith and money behind his recommendations, your portfolio would probably envy a five year old’s piggy bank. You don’t advertise that, do you George? Perhaps he should show us his eleven year track record.

What would we see?

George dumped people into the Grand Canyon, and now he’s celebrating that his followers have scraped their way upwards–155.8 feet in the past three years—with thousands and thousands of feet to still climb before getting back to the surface.

Here are some of George’s 1999 darlings:

• After some reverse splits, $1000 invested in Nortel Networks would be worth pennies today.
• How about Novell? It’s down about 75% since George recommended it.
• And he loved JDS Uniphase, down 98%  since he talked it up.

I’d bring up a few more of his illustrious recommendations, (Globalstar was a good one) but the depression coming from Gilder fever can live in dormancy for a long time.

Most newsletters are created by opportunists wanting to separate you from your hard-earned money. Avoid them—and beware of selective advertising.