Beware: Investing Newsletters Tend to Be Scammy, Lying, Useless Money Pits

by Darwin on January 22, 2012

Newsletter Scam

Let’s imagine the easiest way to make a bunch of money for providing virtually no actual value, having very little accountability, and having the capability to scale your scam as much as you could ever imagine.  Here are a few common “business ventures” that come to mind:

a) Virtually any of the top selling affiliate programs and ebooks you see on numerous blogs. You know, the “make money online” genre, “natural” remedies and cures, diet solutions and workout programs.  Why would so many blogs promote the virtues of ebooks and programs that are worthless?  Well, that’s what affiliate marketing is all about!  The crappier the program, the more they charge for it and then give an ever-increasing cut to bloggers for each sale!  Often upwards of 50%.  Many bloggers don’t really think twice about promoting horribly useless and often, harmful advice for lucrative payouts like that!  Why do you think those reviews are so convincing?!

b) Multi-level marketing of pretty much any sort.  MLM is one of the most vile “business” ventures in existence.  You basically convince other suckers in your downline to be scammed into the same useless system you were just scammed into so you can leach off their exploits as well.  At the end of the day, the goods and services sold through MLMs are invariably overpriced, useless and misleading and a few people at the top get rich.  Within months, the vast majority of all the “suckers” realize they’ve been suckered, they’ve run out of other suckers to recruit, and they quit with loads of time wasted and dollars spent.  Usually, they don’t talk about their lousy experience because they feel so ashamed for enthusiastically promoting something within their social circles and family members only to bail after such a short period.

c) Investment newsletters. Really?


Investment Newsletters: As Useless As FREE Investment Advice, But You Get to Pay for It

Here’s the thing about investment newsletters that makes them so appealing – incredible claims!  This newsletter “predicted the market crash” and that one “beat the market”; meanwhile, this one’s written by a “market guru”.  It’s all nonsense (generally, save for probably 1-2% of older more established and respected newsletters with proven track records and advice).  Here are some key reasons newsletters aren’t worth the time or money:

  • Absolutely no Accountability – When’s the last time you’ve heard of the SEC prosecuting newsletter peddlers for making false claims?  They have their hands full with more politically sensitive cases like Ponzi schemes and Insider Trading.  I couldn’t help but notice a great piece in the Wall Street Journal this week about a “celebrity-endorsed” newsletter.  As if Suze Orman didn’t have her hands full pedaling a widely criticized card (and then calling personal finance bloggers “idiots” for criticizing it), now I’ll be looking forward to her defense of this newsletter report.  Since bloggers in my circle have recently been the targets of lawsuits from high profile celebrities for simply repeating something reported at larger, legitimate news sources, I’ll just let you read about it at and form your own conclusions.  Just consider whether this newsletter met its claims.
  • Genius…Just Genius.  Here’s a really ingenious way to get around worrying about performance and accountability.  Let’s say you’re a newsletter peddler and you want to tout your best and brightest investment performance and sweep your losers under the rug.  Here’s a classic.  You issue several different newsletters over some period of time, say the last year.  Out of the ten different newsletters with whatever circulation you chose (perhaps zero), as long as you were issuing the newsletters and have proof (timestamps, cached in google or whatever), your newsletters are legit, right?  Well, let’s say 8 of the 10 underperformed the market, 1 tied it and 1 greatly exceeded last year’s market returns.  While this may have been due to sheer luck (random probability actually, since I don’t believe in “luck”), you can legitimately ignore the 9 and promote the 1.  Here’s a common claim, “The Tiger Newsletter beat the S&P500 by 12% last year! Subscribe now for just $39 per month!”.  So, all you’re really buying is last year’s performance history in what was arguably just random probability.  This one newsletter is no more likely to outperform the market THIS year than the 9 that didn’t that aren’t be promoted.  But legally, this newsletter peddler is totally within their right to promote this one newsletter.  After all, they have the performance and the timestamps to prove it!  They just conveniently don’t promote the losers.  It’s quite a lucrative and innovative proposition!
  • If They Were REALLY This Good…Here’s the most obvious one that people seldom ask themselves when paying for “exclusive” advice.  Given the ability to use leverage, the power of compound returns and the infinite universe of investment options, if a given individual were SOOOOO gifted at picking stocks, why on earth would they share this priceless advice where they could be making millions running their own hedge fund or investing for other big-money investors (or themselves) rather than peddling $29 newsletters?  I find this to be especially obvious with some of the broadly advertised radio spots and CNBC ads on satellite radio.  You know, that “trader that made millions during the market crash”?  So, why wouldn’t he just keep making millions more, tens of millions more, in future years with such foolproof advice himself instead of making probably a few hundred grand, max, selling these “stock market secrets”?  It just completely defies logic.
  • You Can Get Plenty of Similar Advice for FREE – If you’re considering a paid newsletter that focuses on data, advice, ideas and whatnot, chances are you can get that sort of information for free.  Why?  Given the thousands of finance and investing blogs sprouting up daily, it’s a virtual race to the bottom.  Bloggers who once enjoyed pricing leverage years ago are now finding themselves in a sea of thousands of other similarly-themed outlets and have to resort to either the “freemium” model, or just outright writing good, useful commentary and using their blog to either make money with ads or promote their books or services.  But the net delivery to the reader is free.  So why pay?


Am I A Hypocrite? 

You might question the notion of a personal finance and investing blogger trashing newsletters.  Well, if you check out my portfolio updates, even when I beat the market (which I often did during last year’s reports), I always made it a point to highlight why – not because of my prescient skills and stock-picking abilities, but because I was holding high Beta stocks in an up market.  I also highlighted my WORST Trades.  And finally, I’m not selling you this information.  I make it clear that I’m not a registered investment professional, but I blog and invest as a side-gig hobby and not a profession.

Is an Investment Newsletter EVER Worth It?

Surely, there are some good pieces of advice to be gleamed from some newsletters which may well inform how you want to invest in 2012.  General market commentary and news is worth something, right?  I mean, we pay for newspaper and magazine subscriptions after all.  But we know what we’re getting there – news, commentary and ideas.  Not a portfolio selection that is sure to beat the market.  Sometimes, a technical analysis service may have some promise, but those services could also be prone to all the same problems cited above.  And then, there’s always the FREE newsletter.  As long as it’s really free and doesn’t require some sort of subscription after a free trial and it isn’t loaded with affiliate products they’re looking to sell you, how could you say “free” isn’t worth it?  By its very virtue, it has no cost, so I suppose it’s tough to argue it “wasn’t worth it”.  I have only subscribed to a handful of free newsletters in my lifetime and of those, I found a couple to be mildly useful just from an “idea” standpoint.  I never put much stock in actually following trade recommendations verbatim…since I’m a skeptic.

Do You Have Any Experience With Paid Investment Newsletters?

{ 13 comments… read them below or add one }

W-at-Off-Road-Finance January 23, 2012 at 11:53 am

Other than a few classic newsletters (long gone now) you’re definitely right. “Research” in general is the armpit of Wall Street. It’s where you end up when you can’t trade but are too much a part of the network to be fired outright.


JT January 23, 2012 at 12:51 pm

This is my biggest fear in working as an analyst.

Here’s the deal: analysts have to do work they don’t want to do like everyone else. As an individual, I have the capacity to do valuation analysis only on the firms I want to own. So, essentially, I can cut down on the potential securities I want to analyze to a point where I analyze only 1/500 publicly-traded stocks.

As a hired gun, you have to analyze whatever companies are in your sector. So, let’s say you’re an oil analyst – you watch 30-50 of the biggest firms and keep tabs on what the business would be worth to a private owner. The part about private owner is especially important because most companies that are publicly-listed probably won’t have a private owner any time soon. Instead, you’re tied to the whims of the board of directors.

So, if you do a comparable companies analysis – the most common and most accurate analysis – you have to compare the garbage firms as if they were the best firms…the firms that are soon to have, or already have, a private owner and reference point for valuation. Naturally, this skews higher the potential value of the crappy companies, while holding lower the potential value of the best firms. Sure, you could apply some high discount rate to an individual firm relative to the peers, but then you’re admitting that you know nothing. (I find this to be a good investment strategy. I doubt it’s taken too well on Wall Street, however. Analysts would build a “portfolio” of a handful of stocks. The quants will go nuts over an extreme lack of diversification on multiple fronts and require that a firm own positions in more than a few firms. Many others will chime in on the final investment decisions. That’s life.)

At the end of the day, if you were to pick an analyst and invest based solely on their 5 favorites of the 50 they watch, you would probably beat the market. Unfortunately, there’s no way to know which they really favor – the only insight you might have is what discount rate they use, which tells us how the analyst is pricing the company-specific risk relative to other investments. There’s a billion and a half factors that go into this number alone, so what are you to do? (If a oil firm with average per-barrel price of $60 gets a lower discount rate than one with a $100 per-barrel price, maybe it’s just the market risk to oil prices that give it the higher discount? Or is it the fact the CEO and board are dirtball diluters?)

Newsletters are obviously a joke. Most research is well-intended, but not at all accurate for the above reasons.

For the record, analyst is usually where you end up when you start. Also, it tends to be the place you stay if you prefer 60-70 hour workweeks to 100 hour work-weeks. I don’t really care to defend the profession, as I’m neither involved in it, nor do I particularly care about what people think of it. Finance will always be a guessing game. It’s one of the few fields where he who screws up the least will make a million dollars. That’s hard for a lot of people to comprehend – where else can you make millions of dollars just for avoiding screw-ups?


JT January 23, 2012 at 12:51 pm

That wasn’t nearly as long as it seemed when I typed it.


Darwin January 23, 2012 at 11:51 pm

I appreciated it nonetheless! I agree with the point; often well-intentioned…but investors may be fooled by randomness…


MoneyCone January 23, 2012 at 2:29 pm

Totally agree with you Darwin! Most are just garbage. Who is to tell if what they claim are even true? It’s a let down when even reputable sites like Motley Fools peddle these for a ‘low monthly fee’.

BTW, even Suze Orman now has an investing newsletter now!


Darwin January 23, 2012 at 11:55 pm

Oh yes, I linked to a pretty big “oversight” related to her newsletter within the article above. check it out.


AverageJoe January 23, 2012 at 6:25 pm

You’re on fire today, dude!

I loved reading this post. Why don’t people question these crappy newsletters? Why don’t online marketers realize that IF IT PAYS YOU 50 PERCENT TO HOCK THE PRODUCT, THATS CAUSE THEY COULDN’T GET IT SOLD FOR A 30 PERCENT COMMISSION! Absolute $%#! that people don’t consider that stuff. /rant


Darwin January 23, 2012 at 11:56 pm

Well thanks! I’m usually on fire from the haters :>, glad I have you guys in my corner today!


Invest It Wisely January 23, 2012 at 10:59 pm

I feel the same way about these newsletters, though a select few can be legitimate. I also liked JT’s comment, and funnily enough poker works the same way. You win by making less mistakes than your opponent (as well as exploiting his mistakes). Easier said than done, though, unless your name is Durrrr or another top player.


Darwin January 23, 2012 at 11:57 pm

That’s true about “seeking alpha” anywhere you can get it with small wins. Problem is, I don’t think most of these newsletters deliver even par performance. Through in commissions and over a few years’ period, I image virtually all investors would be better off in a low cost index fund.


Investor Junkie January 24, 2012 at 12:33 am
Brick By Brick Investing | Marvin December 29, 2012 at 12:16 am

While I agree with you on some points I have to disagree with the overall statement. As a consumer you are responsible for the purchases you make. The great thing about financial newsletters is a majority of them have a trial period and a 100% money back guarantee within that time frame. Not to mention if the newsletter is crap you simply don’t pay for it anymore. It is a service industry and that does not mean you will always get great service every where you go.

Yes, I have been burned by a couple newsletters until I stumbled upon Stansberry Research Associates. These guys are top notch and not only do they offer investment advice they give you REAL investment education. The kind of education that isn’t taught at universities but learned in the real world.

I absolutely understand where you are coming from but as I stated above it is ill advised to make a blanket statement for the entire industry. I can personally say that the money I paid for a newsletter was minimal compared to what I’ve learned and how much money I have made personally.

One last thing. You bring up a good point about why these individuals would want to start a newsletter service if their analysis is so great. The reason comes in two parts.

1. Warren Buffet the greatest investor of all time gets returns of approximately 20% a year. Not great at all if you’re looking to make millions quick. But overtime you know 20% compounded annually is huge. Therefore unless these individuals had a portfolio of $1 million dollars they still need to have days jobs

2. No matter how much money you have, you simply cannot capitalize on every great opportunity in the market. I don’t care who you are. Warren Buffet recently said that if he had to start from scratch with a $10 million dollar portfolio the only deals he would conduct would be arbitrage.

My apologies for the long winded post, but I will concede that there are some newsletters that promise 100% gains in a month. Those are the ones you should run away from and FAST.


Darwin December 30, 2012 at 11:00 am

Hmm, appreciate the thoughts, a few points:

– Warren Buffet no longer gets 20% returns annually; it’s been years since he’s had good performance at Berkshire.
– No newsletters I’m aware of consistently deliver 20% annual returns. If they did, they’d be running a hedge fund instead.
– If you’re buying a newsletter for education, that’s one thing; but that’s different than buying an investing newsletter purporting to deliver market-beating returns.


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