The Truth About Investment Newsletters
Who they target and why they're so dangerous
|Sep 6, 2019||1|
I’m sure you’ve seen the ads online: “Buying this stock now would be like buying Amazon in 1999!” Apple and Google are also popular targets of these investment newsletter ads. Who wouldn’t want to buy stock in the next hot tech company before it blows up? If I had a time machine, scooping up big tech stocks before they blew up would be second on my list, right after gambling on sporting events I already knew the outcome of.
In case you didn’t know, there are thousands of people online that actually know which stocks you should buy today so you can be rich tomorrow. Not only that, they’ll tell you. Unfortunately it’s not that cheap (investment newsletters are anywhere from a hundred to thousands of dollars per year), but it’s totally worth it. I mean come on, they’re going to make you rich, right?
Newsletters that pick individual stocks are only successful if they beat the market. I wrote an article recently about Passive Investing vs. Active Investing, which I recommend reading if you haven’t already. Beating the market as an active investor is very hard, and most active investors end up losing.
I won’t go into the numbers of how successful or unsuccessful stock picking newsletters are here. They do get one right every once in a while, but they miss on more than they hit and cause much more harm than good. A great resource I recently discovered is Stock Gumshoe; you can see user ratings and comments on investment newsletters, and there’s also a spreadsheet tracking performance of different investment newsletters. You don’t have to take my word for it, you can do your own research.
It’s probably easy for those of us who know a good deal about investing to ignore investment newsletters. If it sounds too good to be true, it probably is. So who’s the target of these ads? I know it’s none of my readers (and if it is, now you know better).
The reason these stock picking newsletters are so bad is because they take advantage of Americans who don’t have adequate retirement savings, and are desperately looking for some last-ditch, get-rich-quick scheme to save their retirement. And where do they turn? Many end up turning to stock picking newsletters.
The stereotypical subscriber of a stock picking newsletter isn’t internet savvy. They grew up with radios, not the world wide internet. The elderly are more likely to be scammed than younger generations. This means if they see an ad online telling them they can be rich if they invest in this one stock, they’re more likely to believe it.
A former coworker of mine fell for one of these investment newsletters. He was into his 70s and working at the same grocery store I was, and he didn’t have enough savings to retire. Not only did he believe this stock picking newsletter was the answer to all his problems, he wanted to spread the wealth and tell all of us about it, too. He told everyone at work how this newsletter could make them rich if they bought the stocks it told them to. Fortunately, the newsletter he subscribed to is only $149 per year. Many of them are over a thousand dollars. After all, how can you put a price on being rich beyond your wildest dreams?
So how do these stock picking newsletters get away with selling pipe dreams to one of the most vulnerable populations? Well, mostly because of that pesky First Amendment. They aren’t being paid to manage money, so they don’t fall victim to SEC regulation. Laws require newsletters to disclose who paid them, but many don’t. Anyone can start one of these newsletters. You don’t need a college degree or a license.
If you know someone who may have fallen victim to a stock picking newsletter, try to let them down easy. They’ve probably invested a lot of hope, money, and time in their newsletter. Their future retirement might depend on it.