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Are Investment Newsletters Worth It?

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 [3] (you may remember he gave me a sneak peek at his Contributor’s Corner [4]). 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 [5] 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.