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Are Investment Newsletters Worth It?

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I have having lunch with a co-worker last week when he mentioned he was considering signing up for Motley Fool’s Hidden Gems newsletter run by Tom Gardner himself. A single year’s subscription to the newsletter costs $199 a year! Is it worth it?

I have no idea, but I know who might, the resident investment blogger that I talk to on a semi-regular basis and the only one I’ve actually met in person – George of Fat Pitch Financials (you may remember he gave me a sneak peek at his Contributor’s Corner). What did George say?

I’ve tried most of the MF investment newsletter subscriptions. The Hidden Gems research is pretty good and they use to have a great message board back when I tried it out. The subscriptions also give you access to the Fool forums. The only drawback with Hidden Gems that I’ve heard of is that the members often drive up the price of these small cap stock picks real quick when they are selected and the price can drop dramatically when the stock is no longer recommended. The picks also often tend to be higher risk growth stocks.



I think the biggest drawback of the Motley Fool products is that you only get research on a few stocks each month. I like MorningStar as an alternative because they cover 1500+ stocks. I think for even less than the cost of a MF subscription, you get a lot more with the MorningStar Premium Subscription.

Sounds like the newsletter is certainly of value but there are certainly very obvious drawbacks. While there appears to be value in the MF Hidden Gems one specifically, I can see how most of those drawbacks are systemic problems for all newsletters. Just think of the picks Jim Cramer gives away for free on his television show, the stocks spike the next day and any value that was there is quickly diminished. While the picks may or may not be good in the long run, in the short run they are made “less good” by virtue of being broadcast on CNBC. The only mitigating factor (to the popularity issue) of Hidden Gems is that the annual entrance fee of $199 dissuades many an investor so you won’t get the throng that pant over Jim Cramer’s daily selections.

Beyond the short term spike, George mentions something that may be obvious if you think about it – they tend to pick higher risk growth stocks. Well they’re looking for hidden gems, so they’ll probably be picking riskier propositions but ones with long term potential. With venture capital, the old maxim is that you pick one home run, four treadwaters, and five busts (something like that… I’m not a VC); so if you apply that to stock picking, you don’t have to be mega-successful percentage-wise to be mega-successful dollar-wise. All it takes is one twelve-bagger…

Lastly, there is also the issue of coverage, since the newsletter has to make certain picks, it can’t cover the whole field and provide extensive research on a lot of securities. Also, what if there aren’t any hidden gems or they don’t find any? There is the possibility that right now there are no hidden gems worth taking a shot at, so do they trot out something or just research a bunch of securities and let you have at them? It’s an interesting question that I don’t know if anyone has asked them yet. That’s why George recommended Morningstar, especially if you’re a more active investor because you get significantly more information.

Lastly, I do have to give a shoutout to George’s Contributor’s Corner (especially since his email was very thorough), it certainly has value and comes with a cheaper sticker price of only a hundred dollars a year. George finds all sorts of arbitrage opportunities that come with little risk and requires quite a bit of work on George’s part. Making back the $100 is a cinch through the various going private, reverse split, and buyout opportunities he digs up. (George isn’t cutting me in on the action though :) )

Anyone out there use MF Hidden Gems or any other investment newsletter and care to share their experiences? MF Hidden Gems does have a 30 day trial so my friend might dip his toe in to see how it is, I’ll report back if and when he does.

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10 Responses to “Are Investment Newsletters Worth It?”

  1. MFJ says:

    I’ve been a Motley Fool Stock Advisor subscriber for almost 2 years now and have been pretty happy with the service. I pay $149 annually for my subscription, but every once in a while they run a deal where you can renew for $99.

    The newsletter pits David Gardner vs Tom Gardner and they each make a pick each month. This newsletter is not restricted to a single asset class or investing type. They pick small cap, mid cap, large cap, growth, value, etc.

    David’s picks tend to be more high flyer boon or bust picks like Jim described above for venture capitalist. Tom however seems to be more value conscious and I seem to agree with his strategy quite a bit.

    All stocks are picked with a minimum holding period of 5 years, but the goal is a period much longer than that. So if you are looking for short-term gambling picks this is not a newsletter for you.

    The message boards can be very informative and there are a lot of smart people on them.

    As far as my success with the newsletter my average annualized returns for my Stock Advisor purchases is right around 26%. Now this is short-term success and the market has been doing nothing but going up since I have been a member, so we’ll see what happens in the long run, but so far I have been beating the market by a fair margin. I have about 25 stocks that I have purchased.

    The key to a newsletter like this is having an ample amount of money to invest so that you can purchase a stock each month with enough money that you don’t get killed by transaction fees (Zecco could maybe clear up this problem)

    I guess the biggest thing is find a newsletter than fits your investing style and that you think you can get value out of. If it advertises getting rich quick and they have the magic formula that no one else has then I’d probably run the other way.

    There is a watchdog service run by the Hubert Financial Digest that subscribes to all of these newsletters and may be worth checking out. The Fool mentions this in their ad found here – http://www.fool.com/shop/newsletters/18/index.htm?source=isasitltn3550100

    Without sounding like a hypocrite too much I guess as a general rule of thumb I would NOT recommend newsletters and would suggest simply investing in index funds. To me a newsletter is no different than an actively invested mutual fund. Yeah some might beat the the market, but a vast majority are going to fail to beat an index fund and on top of it you have to pay the annual fee.

    I certainly don’t use the Stock Advisor newsletter for my entire portfolio and could afford to lose every penny invested in my newsletter picks. I guess I can’t recommend SA – other than to say check it out for yourself and see if you find value in it. As Jim mentioned the Fool offers a 30 day free trial on all it’s newsletters.

    As a sidenote I think the newsletters are the worst thing that could have happened to the Fool. It used to be such a great place for a newbie investor to learn and they toughted index funds and other smart investing, but now all they do is hawk these damn newsletters.

  2. Mike says:

    I’ve subscribed to a market timing newsletter for many years, and I’ve been happy with the results. It gave me the advice I needed to get out of the market before the crash in 2000, and back in at the bottom in 2003.

    The newsletter I use has a couple of stock picks (which haven’t changed in many years, and have been rated “hold” for most of that time), but primarily deals in mutual funds, and strongly encourages low cost, no load, broad market index funds for most investors. The majority of my investment money is in Vanguard Total Stock Market Index fund shares.

    I think I’d be less interested in a stock picking newsletter, but I think that has a lot to do with my investing preferences and style. In bull markets I’d prefer to just have a few holdings and hold them, and in bear markets I’d be sitting on the sidelines. I think a newsletter that’s always hyping the latest great stock pick is contrary to that style.

  3. D says:

    most are not… check out the Hulbert Report to see how most investment newsletters perform over time.

    Some do make good contrarian indicators, though.

  4. Star Money Articles for the Week of June 18

    Here are interesting posts and news this week from the MoneyBlogNetwork and beyond: Five Cent Nickel lists ten tips for a successful moving sale. Blueprint for Financial Prosperity wonders if investment newsletters are worth it. Consumerism Commentary …

  5. Frank Kelly says:

    I think people could learn a lot more and be better informed if they just subscribed to the Wall Street Journal newspaper

    -Frank

  6. Peter says:

    I love it! And with newsletters, simplicity is best. Your sections are very clear, readable and easy on the eyes. I often wonder where others get their information from and so to that end I’m going to share some of my sources.

  7. Mike says:

    I have been a Hidden Gems subscriber for two years and my returns have not been anything like the advertised. Apparently, the stocks they’ve picked in 2007 were “hidden” for good reason. I probably won’t renew this year.

  8. thunderthighs says:

    I’d like to see more “reviews” such as this of investment newsletters!

  9. Dennis says:

    I have subscribed to Hidden Gems, Million Dollar Portfolio and to Motley Fool Pro and Recently to Big Short. I can’t say that the recommendations per se have worked out for me. I learned interesting options strategies with Motley Fool Pro. I will probably cancel my Big Short Subscription within the trial period. The hype that Motley Fool bombards you with in their advertising is just repulsive. When you look at Pro’s performance they did not beat the S&P by more than 1%. Big Short’s big thing is this Proprietary EQ scan- good? Bogus? Who knows?

  10. Fall says:

    I think MF is a good guide, but its still up to you to weed out whats good and not.

    I think too many people expect the MF to be a get rich quick scheme. Yes, the MF has a pretty good positive record, but playing stock is like gambling in a casino.

    MF should not be consider an guide to getting rich. MF should only be used as a general guide to steer you towards potential good stocks so you won’t have to weed through hundreds of stocks with your limited knowledge.


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