How to Choose a Useful Investment Newsletter
In the mutual fund arena, success has bred confusion. Investors have more than 3,000 stock, bond and money market portfolios to choose from--more than the number of companies listed on either the New York or American stock exchanges. So it’s not surprising that some people feel overwhelmed by the selection. To help sort it all out, thousands of individuals have turned to investment newsletters.
These publications exist to provide advice--primarily on the stock market but also on bonds, precious metals and other assets. They recommend what to buy or sell, and when to do it. About 40 of the 120 investment newsletters tracked by the authoritative Hulbert Financial Digest of Alexandria, Va., cover mutual funds.
Most of these fund-oriented publications charge $100 to $250 for a yearly subscription, proving the old adage that information isn’t free. Many newsletters publish monthly, although some come out as often as every other week or as infrequently as quarterly.
As you might guess, the publications vary widely in scope, strategy, sophistication and style. And the people who give the advice come from diverse backgrounds. For example, Dan Sullivan, editor of the Seal Beach-based Chartist and Chartist Mutual Fund Timer letters, used to run a liquor store in Whittier before teaching himself about the stock market. Yet this lack of formal training doesn’t appear to have hindered him, considering that the Chartist finished near the top in Hulbert’s 10-year ranking of newsletters (See chart).
When shopping, you first should decide how much mutual fund help you want. If you already have a portfolio of funds or feel confident in your ability to select good ones, you might opt for a letter than simply tracks the movement of the stock or bond markets, flashing timing signals along the way.
Or you can select a publication that not only provides market-timing commentary but also specifies which mutual funds to purchase, along with key information such as the fund company’s phone number, minimum investment requirement and sales fees, if any. Most newsletters, incidentally, limit their recommendations to no-load and low-load funds.
Some newsletters, such as the Growth Fund Guide in Rapid City, S.D., include meticulous charts that show the trading patterns of selected portfolios. Others, like the No-Load Fund Investor in Hastings-on-Hudson, N.Y., publish expansive tables listing the performance of several hundred funds. Still others, such as the United Mutual Fund Selector in Wellesley Hills, Mass., provide an in-depth analysis of each portfolio recommended.
Also important, most newsletters present asset allocation guidelines. For example, the L/G No-Load Fund Analyst, based in San Francisco, recently advised conservative growth investors to have 35% of their assets in three international equity funds, 40% in two domestic stock funds and 25% in one bond portfolio. The newsletter recommended different asset allocations for people with other risk postures.
Given the many newsletters from which to select, here are some factors to look at when narrowing your choices:
* Performance. Obviously, you should lean toward publications with a history of dispensing profitable advice. “Preferably, the newsletter will have numbers dating back at least several years, including at least one full market cycle,” says Mark Hulbert, editor of Hulbert Financial Digest.
Investment letters that earn a good rating from an independent monitoring service such as Hulbert or Timer Digest of Greenwich, Conn., typically will boast about it in their ads and other marketing literature. Make sure you find out which time frame the ranking covered. It’s possible for a top-rated newsletter over, say, a one-year period to have an unimpressive record over a longer stretch. “Someone’s (investment) models can get out of tune and stay out of tune for quite a while,” notes Jim Schmidt, publisher of Timer Digest.
* Risk. Results alone aren’t enough. “You also have to ask yourself how much risk the newsletter took to achieve those returns,” Hulbert says. Did the adviser hit it big recommending a volatile aggressive growth portfolio or gold fund? Or did he stick with a more conservative, balanced or growth income selection?
Usually, you can get an idea of the newsletter’s risk posture by reviewing a couple of issues and examining the types of funds recommended. Many letters will provide a free sample on request or, at the least, a trial subscription at a reduced rate. Select Information Exchange (212-874-6408), a New York company, will send your choice of 15 sample publications for $7.97. The service covers roughly 300 newsletters in this trial plan.
* Clarity. The financial advice you get won’t be much help if you can’t understand it. Look for publications that keep the Wall Street jargon to a minimum. Of even greater importance, stick with newsletters that provide straightforward recommendations. “We sometimes stop following advisers if we think the signals are unclear,” Schmidt says.
* Required action. Similarly, the recommendations provided by a newsletter that flashes a lot of timing signals won’t do much good if you don’t have the time to act on them all. Some outfits feature telephone “hot line” numbers for you to call to receive weekly or even daily updates. Depending on the adviser, a hot line service might cost extra.
Besides the inconvenience of having to dial a hot line frequently, it won’t necessarily improve your financial returns. “There’s no correlation between having a hot line and superior performance,” says Hulbert, who describes himself as an “agnostic” on the question of whether market timing works better than a buy-and-hold strategy over the long haul.
Most investors, in fact, probably shouldn’t move too often from stock or bond funds to money market portfolios, or vice versa. For starters, some mutual fund companies won’t allow too many switches within a given period. In addition, when you’re moving around a lot, you increase the chances of missing the next rally. “Many advisers have done an excellent job avoiding market downdrafts; that’s their main job,” Schmidt says. “But a strong adviser will also keep you in the market when you otherwise wouldn’t be.”
PICK OF THE LETTERS The following three investment newsletters received top ratings from the Hulbert Financial Digest over the 10-year period from July 1, 1980, to June 30, 1990, based on buy and sell recommendations. Over the same period, the Standard & Poor’s 500-stock index rose 376%.
Newsletter Yearly 10-Year (Adviser) Price Frequency Return Telephone Zweig Forecast $245 Every 3 weeks +482% (516) 785-1300 (Martin Zweig) Chartist $150 Twice monthly +361% (213) 596-2385 (Dan Sullivan) Growth Stock Outlook $195 Twice monthly +352% (301) 654-5205 (Charles Allmon)
Note: You can invest directly in funds managed by two of the above advisers. The Zweig Funds group of Bellmore, N.Y., (800-272-2700) features two equity and four bond mutual funds that carry loads ranging from 4.25% to 5.5%. Charles Allmon runs the Growth Stock Outlook Trust, a closed-end portfolio listed on the New York Stock Exchange.
