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WALL STREET, CALIFORNIA: Insight for Investors | FORUM

If You Want His Advice . . .

Thinking of Taking a Newsletter? First Consider Its Performance, Critic Mark Hulbert Says

January 06, 1998|RUSS WILES | Russ Wiles is a mutual fund columnist for The Times. He can be reached at

When people need personalized investment help, most turn to brokers, financial planners and money management firms. When they want another opinion, they consider the recommendations of one or more of the several hundred newsletters that aim to supply investment tips and market commentary for a broad audience.

There are newsletters covering every kind of market--stocks, bonds, mutual funds, precious metals, options. Most have sprouted in the last 15 years, and many appeal to the do-it-yourselfer who wants help but would rather not reveal his or her financial secrets to a professional.

Newsletters typically deliver their advice monthly in four to 20 pages, and many are supplemented by telephone "hotlines" subscribers can dial to get breaking advice. Investors pay anywhere from $35 to $300 or so a year to subscribe, but most publishers will send a sample issue on request for free or for a small charge.

Most newsletters provide enough information to allow readers to build and maintain a portfolio on their own. But in a few cases, the publishers are also professional money managers who, for a fee, are happy to manage their readers' portfolios directly. In fact, some of the newsletters are more promotional device than anything else.

Unlike stockbrokers, say, or mutual fund managers, newsletter publishers are largely an unregulated lot. You don't need any educational or work-related credential to start a newsletter, and you don't need to pass any tests. You can base your advice on anything--one well-known newsletter uses astrology to predict the stock market's path. And you can spout off on just about anything you want. Some publishers frequently pepper their pages with discussions having little to do with investing, taking in anything from biblical passages to social commentary.

As might be expected, then, the quality of advice rendered varies considerably, as do performance claims, the clarity of writing, and more. Investors should be aware that certain newsletter publishers are among the investment field's most aggressive self-promoters, touting themselves at trade shows, in mass mailings and elsewhere. Caveat emptor applies here as much as anywhere else in the financial realm.

However, since 1980, Mark Hulbert has been keeping a skeptical eye on newsletters' performance claims with, yes, a monthly newsletter of his own. His Hulbert Financial Digest monitors about 500 newsletters, and also offers related material, such as reviews of newsletters or articles challenging advertising campaigns.

Hulbert also writes a regular column on investment advisors for Forbes magazine, and he has a Web site ( that provides basic information on newsletters.

Hulbert's passion has made him a newsletter expert. He spoke recently with The Times about his efforts:


Times: What prompted you to start a tracking service for investment newsletters?

Hulbert: I started the firm soon after graduate school. I was writing a book [and] . . . one of the people I wanted to interview was attending an investment conference in New Orleans in 1979. It was my first exposure to this industry. One newsletter editor after another would parade across the stage and talk about how good his track record was and how much money you'd have made by following him. I thought it would be great to have a service that actually kept track of these guys' records. They could not all be telling the truth because they were contradicting one another.


Times: How many investment newsletters are there, and how many do you track?

Hulbert: It's hard to give an exact number because it's partly a definitional matter. For example, a lot of brokers send out tip sheets for clients. Are those newsletters? I don't define them as such.

I'd say about 500 newsletters are sold for hard subscription dollars [that is, sold on their own and not included with some other kind of purchase] and count more than a handful of subscribers. We track 160. Most of the rest don't have a model portfolio, or they don't offer sufficiently clear advice for us to construct one for them.


Times: How does the ratings system work?

Hulbert: If a newsletter recommends a model portfolio of securities, we use it to evaluate the newsletter.

But if no model portfolio exists, we have to construct one for that newsletter. We construct it out of those securities with the highest ratings at that time. For example, if a newsletter lists 50 stocks as a "buy" and 50 as a "hold," we'll construct the portfolio out of the 50 buys. So when a stock is downgraded from a "buy" to a "hold," we sell the stock from the model portfolio.

Basically, our approach tries to put a newsletter's best foot forward. Some newsletters don't even use the words "buy" and "hold," but the same principle applies.

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