One smart way to invest is to subscribe to a solid investment newsletter -- online or through the mail -- and follow its recommendations. But how do you separate the good newsletters from the lousy ones?
Fortunately, Mark Hulbert has tracked investment newsletters for more than 20 years in his Hulbert Financial Digest. The latest issue provides performance data on all the letters he monitors.
Hulbert is painstakingly accurate. He takes such steps as subscribing to each newsletter he tracks under a friend's name -- to ensure that he doesn't receive issues earlier than anyone else. That allows him to establish purchase and sales prices for stocks fairly.
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His research, along with academic studies, concludes that the best way to pick a winning newsletter is to focus on long-term, risk-adjusted performance.
Risk-adjusted performance is an important concept. If a newsletter invests only half its portfolios in stocks, other things being equal, it will be only half as risky as the market. So, a newsletter that is only half as volatile as the market shouldn't be expected to beat the market in absolute terms.
The Top Fund Newsletters
Indeed, the top newsletter of the past ten years (through the end of 2004) is No-Load Mutual Fund Selections and Timing. It has returned an annualized 10.3%, compared with 11.9% for the broad-based Wilshire 5000. But it has produced those results with 54% less volatility than the index.
Editor Stephen Mckee has added value both through shrewd timing moves and good fund selection, Hulbert says. His recommendations have never lost more than 7% in any 12-month period.
Ranking second is Investment Quality Trends, which focuses on big, dividend-paying stocks. It has returned an annualized 14.2% over the past ten years with 25% less volatility than the Wilshire.
Third is No Load Fund*X, which switches into funds with the best short-term results. It has returned an annualized 19.3% over the past ten years with just a bit more volatility than the Wilshire. I wrote about this and other fund-momentum newsletters in Kiplinger's Personal Finance magazine last year (see "They Ride the Hot Funds," March 2004).
Bob Brinker's Marketimer is in fourth place. Although Brinker's fund picks have slightly lagged the market on average, his timing moves have put him ahead of the market. Over the past ten years, he's gained an annualized 13.2%, with 19% less volatility than the market.
A note: After I wrote about Brinker's newsletter two years ago, I received several e-mails from angry readers claiming Hulbert didn't accurately reflect all of Brinker's predictions. Indeed, Hulbert notes that Brinker incorrectly forecast a bear market rally in late 2000, recommending a losing trade in the Nasdaq 100 index. But Hulbert doesn't count that trade against Brinker's record because Brinker didn't make it in his newsletter's model portfolios.
Pick the Best Letter
Before you subscribe to any newsletter, be sure you're investing enough to make it worthwhile. The newsletters above cost $150 or more annually. (I haven't listed the prices because almost all of them periodically offer specials at their Web sites.) On a $10,000 portfolio, $150 is 1.5% annually -- a huge chunk.
Take a look at a newsletter's home page and get a sample issue before you subscribe. Make sure you'll be comfortable with its trading style and advice. For instance, some newsletters require frequent trades. If you're not always near a computer, or if you don't want to take the time to make the trades, look elsewhere.
Finally, once you pick a newsletter you like, try to stick with it for several years. Even the best newsletters will have rotten years.
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