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Investment Newsletters – Do they help you beat the market?

Posted by Scott Keefer on Jul 16th, 2008

Today I came across a two minute video on You Tube which looked that the question – Can newsletters help you beat the market? The presenter was Tom Cock who is also involved with the Sound Investing podcasts of which I am a big fan. (This topic is the latest of a series of 15 videos under the banner SoundInvesting on YouTube)

In Australia, these type of newsletters include the Intelligent Investor, Huntleys, Fat Prophet and the Rivkin Report to name a few examples. They provide recommendations for readers as to what individual shares should be bought, held or sold.

In this video Tom looks at American research into whether if you followed the recommendations of investment newsletters you could beat the average market return. The research was conducted by Hulbert Financial Digest. (Their main business is producing a newsletter which provides a guide to all the US investment newsletters.)

Hulbert found that since 1980 there has been a high attrition rate amongst these newsletters with 100s going out of business. Of the ones that had survived, only 4 have managed to beat the average market return. Interestingly, the conclusion of the report states that most will do better buying and holding an index fund.

On a similar note, an academic study conducted by Graham and Harvey from Duke University in the USA found some uninspiring results for investment newsletters – “Market Timing Ability and Volatility Implied in Investment Newsletters’ Asset Allocation Recommendations”. They looked at the advice provided by a sample of 237 over the 1980-1992 period and found that only a small number appeared to have higher average returns than passive portfolios. They also tested the timing abilities of newsletters by looking at how often newsletters correctly change there asset allocation weights. Their finds were that the newsletters offered unimpressive advice.

I am not aware of any similar research in the Australian context, but there is a good chance that the same results would be replicated here.

In my opinion you would be much better served putting the subscription fee towards investing more units in a passively invested portfolio based on index funds.