Investor Newsletters Declining Since Crash
With the stock market going nowhere, the investment newsletter business is going under--at least for awhile.
Purveyors of tip sheets, investor hot lines and market-intelligence reports have suffered sharp declines in new subscriptions in the months since the October crash.
Several have put their businesses up for sale and others have stopped publishing because of cancellations and trouble in finding new customers, especially given the market’s apathetic performance lately.
To be sure, some well known newsletters are doing quite well, especially those that warned subscribers to reduce their stock exposure prior to the crash. A few have even enjoyed increased circulation, but the majority are suffering acutely.
“Individual investors just aren’t interested,” said Dianne Chaykin, marketing director for Investment Information Services, a Chicago-based concern that publishes four newsletters. She said post-crash response rates to direct-mail solicitations have fallen by at least 50%.
“You ask anybody and they’ll say renewal rates are the best in the industry. But you can only live on your renewals for so long,” she said. “This is not just the summer heat affecting the subscriptions. This is a bear market. The name of the game right now is to survive this period.”
Low Start-up Costs
The number of letters is estimated at between 600 and 1,000, but that appears to be dropping. Diversified Investor’s Forecast closed in July, for example. Investment Information Services itself recently acquired a California-based mutual fund advisory service, Chaykin said.
Stan Weinstein, publisher of the highly successful Professional Tape Reader in Hollywood, Fla., has predicted that a year from now, “you are going to see far fewer newsletters.”
To a great extent, the large number of newsletters that were created over the past few years directly resulted from the historic bull market that began in 1982 and ended with frightening finality last October. Many relied on direct-mail solicitations to thousands of small investors eager to participate in what was promoted as an unprecedented opportunity to profit in stocks. The newsletters did not take much start-up money, either.
“In a bull market, anybody with a personal computer and a stockbroker could start a newsletter,” Chaykin said. “If it’s just you and a secretary, you don’t need many subscriptions at a 100 dollars a pop.”
In that type of environment, garnering customers by mail is considered the best way to increase circulation. But as a post-crash strategy it is excessively expensive because few people respond.
“During most of the time, it certainly has paid to do direct mailing to attract trial subscription, but there have been periods like now when it becomes inefficient to do so and you hold off,” said Arnold Kaufman, editor of The Outlook, a newsletter published by Standard & Poor’s Corp. in New York.
Although the $240-a-year letter is in no danger, Kaufman expressed concern about prospects for increasing subscriptions, a direct consequence of when individual investors will find stocks alluring again.
A Few Faring Well
There have been other bad times for newsletters. Mark Hulbert, head of Hulbert Financial Digest, a Washington-based publication that tracks the performance of about 150 newsletters, said the last downturn was in 1984, before it was clear that Wall Street was in the midst of a major advance. A particularly bad period for the newsletter business came in 1974, another hard year for stocks, Hulbert said.
“The irony is that when the market’s going up, everybody’s making money and they need a newsletter a lot less,” he said. “If you look at it coolly and rationally, you need a good newsletter more in a bear market than in a bull market.”
That certainly has been the case for Weinstein, who correctly predicted the October break and says he has enjoyed a vast increase in subscriptions for his $275-a-year newsletter.
Another beneficiary has been Charles M. LaLoggia, publisher of Special Situation Report, a Rochester, N.Y., tri-weekly that focuses on takeover stocks, one of the few profitable areas in the post-crash market.
LaLoggia said he had a sharp drop-off in subscriptions to his $230-a-year newsletter immediately after October but regained them, partly because of his prescience in picking acquisition targets.
“A lot of of people thought the takeover game was dead but I stuck my neck out and said it wasn’t,” he said.
LaLoggia said his own theory on newsletters was that they worked like any other cyclical business: Quality attracts the loyal customers through bad times and good.
