What Most Investors Do Not Realize When They Subscribe to an Investment Newsletter
Investment newsletters have been around for decades and have produced some really great ideas for investors in general.
Yet, they carry two unique challenges for both investors and publishers.
The first challenge in pricing any investment newsletter comes down to the market that buys it.
Take The Poland Report, which is priced at $4,950 per year and markets itself to investors with at least $50,000 in the stock market.
If it was priced $250 a year instead it might get subscribers that only have $5,000 in the market instead of $50,000 plus.
At the same time it could charge $1,500 a month and make more money with fewer clients, but the true goal is to provide value to as many investors as possible while allowing each to make money.
I think most newsletters have the same goal.
This brings up the second challenge, which is the amount of subscribers involved in each newsletter.
While it is true that we (the industry participants) are not managing the money for the subscribers, it does not mean that they (the investors) do not follow each idea we issue in their portfolios.
In fact, that's what we want them do right? So the services that have thousands of subscribers or tens of thousands create a burden for both themselves and the investors following their ideas to outperform the market.
Thus in the same way the average mutual fund rarely beats the performance of the market, most newsletters are in the same boat, even if they are managed by really smart people, which many are.
Take a service like Jim Cramer's at TheStreet.
com, which has a lot of very talented market strategists and editors, yet they easily boast over 100,000 subscribers, making it hard to create value for every one of them.
This is a great problem to have for any company, but it makes it tough for subscribers to find value other than having to continue to do more research on the stocks that each newsletter highlights, which is something most investors can do on their own for FREE using websites like Google, MSN, and Yahoo! Is this what really happens though? For example, say JC announces that Boeing (BA) is a Buy on Mad Money or through one of his newsletters.
Now BA trades 5 million shares a day and at $66 means that $330 million changes hands every day.
If 100k people buy it, however, it only takes $3,000 each to move the market.
For smaller companies that have much lower daily trading volumes it would take even less.
Alas, when too many people know about a bargain, it ceases to remain a bargain.
But, what about the flip side when all these investors are trying to sell the stock? Thankfully there are many day traders, swing traders, and short term traders to make up the spreads in these stocks, yet investors will always get squeezed through these kinds of legal pump and dumps.
Of course no one calls journalism or media pump and dump schemes and they are, in fact, simply trying to educate the market.
My theory is that most investment newsletters have subscribers that follow the stocks they want and leave the rest behind.
This is good news for services that come out with picks every day, but what about those that only publish new ideas once or twice a month? When investors pick and choose from these newsletters they are bound to make mistakes.
That is why there are many services with good performance histories that don't make their subscribers any money.
In the end, the missing piece is and always will be the individual investor.
The only way to really temper lousy performance is to find a newsletter with a low subscriber base and an excellent track record.
A few that I've found include: Contratheheard.
com, Tycoonresearch.
com, and 13d.
com.
Yet, they carry two unique challenges for both investors and publishers.
The first challenge in pricing any investment newsletter comes down to the market that buys it.
Take The Poland Report, which is priced at $4,950 per year and markets itself to investors with at least $50,000 in the stock market.
If it was priced $250 a year instead it might get subscribers that only have $5,000 in the market instead of $50,000 plus.
At the same time it could charge $1,500 a month and make more money with fewer clients, but the true goal is to provide value to as many investors as possible while allowing each to make money.
I think most newsletters have the same goal.
This brings up the second challenge, which is the amount of subscribers involved in each newsletter.
While it is true that we (the industry participants) are not managing the money for the subscribers, it does not mean that they (the investors) do not follow each idea we issue in their portfolios.
In fact, that's what we want them do right? So the services that have thousands of subscribers or tens of thousands create a burden for both themselves and the investors following their ideas to outperform the market.
Thus in the same way the average mutual fund rarely beats the performance of the market, most newsletters are in the same boat, even if they are managed by really smart people, which many are.
Take a service like Jim Cramer's at TheStreet.
com, which has a lot of very talented market strategists and editors, yet they easily boast over 100,000 subscribers, making it hard to create value for every one of them.
This is a great problem to have for any company, but it makes it tough for subscribers to find value other than having to continue to do more research on the stocks that each newsletter highlights, which is something most investors can do on their own for FREE using websites like Google, MSN, and Yahoo! Is this what really happens though? For example, say JC announces that Boeing (BA) is a Buy on Mad Money or through one of his newsletters.
Now BA trades 5 million shares a day and at $66 means that $330 million changes hands every day.
If 100k people buy it, however, it only takes $3,000 each to move the market.
For smaller companies that have much lower daily trading volumes it would take even less.
Alas, when too many people know about a bargain, it ceases to remain a bargain.
But, what about the flip side when all these investors are trying to sell the stock? Thankfully there are many day traders, swing traders, and short term traders to make up the spreads in these stocks, yet investors will always get squeezed through these kinds of legal pump and dumps.
Of course no one calls journalism or media pump and dump schemes and they are, in fact, simply trying to educate the market.
My theory is that most investment newsletters have subscribers that follow the stocks they want and leave the rest behind.
This is good news for services that come out with picks every day, but what about those that only publish new ideas once or twice a month? When investors pick and choose from these newsletters they are bound to make mistakes.
That is why there are many services with good performance histories that don't make their subscribers any money.
In the end, the missing piece is and always will be the individual investor.
The only way to really temper lousy performance is to find a newsletter with a low subscriber base and an excellent track record.
A few that I've found include: Contratheheard.
com, Tycoonresearch.
com, and 13d.
com.