I regularly receive email solicitations to buy investment newsletters. Everything from the “Motley Fool” to some boileroom operation in Miami.
My question: if you are a successful stock picker, why share your knowledge with the public? It makes no sense to tell others about big opportunities in “Consolidated Egine Sludge, Inc.”, if you can buy the shares yourself?
Of is distributing a newsletter highly profitable?
Yeah, I get lots of stuff like this as well (and phone calls). I think that these folks have different motivations, and it’s hard to tell who’s who:
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Some are just driving traffic to a legit site (e.g., Motley Fool).
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Some are giving free tips in hopes that you profit and then pay for tips. And then some of the tips you pay for will come from reputable sources and be well-researched while others will just be complete BS.
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Some are hoping to provide you brokerage services.
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Some are hoping to “pump and dump” (i.e., talk up the stock so others buy it and raise the price, then sell themselves).
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Probably other various types of fraud going on with some as well (i.e., phishing-type stuff).
So, some are legit, but it’s hard to tell them from the BS (I guess like anything else in life).
Why not do both? You can purchase shares in Consolidated Inc and then sell the tip to others. In fact once you have purchased the shares it’s in your interest to persuade as many as possible to also purchase them.
I am skeptical of the Motley Fool-they issue recommendations, and frequently reverse what they said, in the next newsletter. The big problem remains: if they are influential enough, they may well be capable of manipulating the market, which means that the stocks they tout may drop precipitously, once they are no longer recommended.
I myself follow my own strategy-I look for large firms (market cap >1 $ billion), with at least 1 million shares traded per day.
I figure the high liquidity is necessary for me to make small profits on a large number of trades (which is my strategy). If I can make 1%/week, that is 52%/year, which is not bad.
If you’re making 52% a year, you’re taking huge risks with your money. It’s easy to double your money–take it all to Vegas and put everything you own on red, and spin the wheel.
1.01 over 52 weeks is ~1.68 not 1.52 and if you’re managing to make that much on your aggregate investment each year you are an investing god.
Always bet on black!
If you are making 1% a week you should put out a newsletter.
The fact that a site is legit, a al Motley Fool, does not remove it from your other options. Especially #2.
I’m of the opinion that my investing in the market should be solely based on my research and my studies. Otherwise, I’m simply paying someone a cut of my income to do the same.
If a brokerage, or a mutual fund, or whatever, can demonstrate that they are better than I am to the extent that even after they take their cut, I’ll still be better than the market, I might could go with that. I’ve seen little evidence that any of them are any more than “by guess and by golly”.
Handle your own investments via technical analysis!
The 2 websites I use are bigcharts.com and clearstation.com. While they have a community they do not give advice. It’s purely a toolbox and it is up to you to use it.
No! Red! D’OH!
Do they still have those $1,000±a-year investment letters, the kind which were printed on non-photo blue paper? Their existence always struck me as the triumph of blind hope over experience.
My point is that it’s easy to get a 1% return every month. Just bet your whole portfolio on something that is 99% likely to occur. Do that every month, and your average return every month will be 1%. Until the day you roll snake-eyes and lose everything. But this probably won’t happen for years, since the odds of bankrupting yourself are so low.
Lots of investment manager use this strategy, and make good returns for their customers, until something completely unforseen and unforseeable, like, say, a drop in the stock market occurs. As long as everything goes along as expected you make great returns. Until you don’t, and then your fund goes bankrupt. But hey, who could have expected the unexpected? And so you start a new fund, and make good returns for your investors for years, until something unexpected happens and you go broke. But who could have expected such a thing? You made good returns for years, so people give you their money again, because who expects the unexpected?
Oh? I’m quite interested in these 99% guaranteed 1% monthly return investments…
Will you still be interested after he explains that the simple strategies to achieve that have the following defect: the 1% of the time you fail to win 1%, you lose 100% instead? :smack:
My post was meant to imply that I don’t believe these types of investments are common.
I guess, if you had a larger enough account, you could get a trading desk to construct a binary option for you…
It should be rather straightforward. Just make any investment whose price is likely to be even slightly erratic (*) and place sell order at whatever price gives you 1% profit.
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- I lack the experience to suggest a specific investment (buying a straddle might be an easy way) but if one assumes the “efficient market hypothesis” and continuous price movements then almost any investment would work.
Demonstrating this with historical data might be to assume what you’re trying to prove if, say, you use a history with no market collapse. Of course it’s trivial to construct the required “speculation” with Martingale-style casino bets but, since the casino takes positive vigorish, you’d be winning your 1% with, say, probability 98.9% instead of 99%.
As lemur866 implies, many praised investment managers are actually doing a variation of this; indeed the way many investment managers are rewarded encourages it.
There is even a phrase for the strategy that septimus describes : “picking pennies in front of a truck” sometimes used to describe the carry trade. As mentioned martingale bets are another example of the same idea which is you make small returns with a high probability for some time but the longer you play the greater the chances of a catastrophic loss well above all your previous gains.
From an individual point of view this doesn’t make sense but if you are a fund manager it can be quite tempting. When you are picking the pennies you are earning above average returns and good bonuses but when the truck moves forward it’s not your personal money which is on the line. The fund can declare bankruptcy and the manager moves on. Even if he has some skin in the game he could end up ahead depending on how long he has been picking up the pennies.
The bottom line is that there is a structural incentive in much of the finance industry to take excessive risk as amply demonstrated by the events of the last few years.
The majority of mutual funds do worse than the S&P 500.
This means that not only do fund managers *add *no value, they actually *subtract *value. Why they get paid so much is beyond my comprehension. I imagine newsletter writers are just as bad.
The fatal flaw of ‘stock picker’ newsletters is that the market, while not perfectly efficient, is efficient enough that by the time information about the company is widespread enough to make it into newslettters, the relevant facts have already been priced into the market.
It is extremely difficult for a private, low-volume investor to gain an edge over the day traders and institutional investors this way. A lot of money is lost by people chasing ‘hot tips’ looking for the killer deal that’s going to make them rich.
There are only two investment strategies that makes sense to me - one is to build a nicely balanced portfolio that returns reasonable rates for an established level of risk. Your job as an investor in this case is to find vehicles for allowing you to pick a diversified portfolio of stocks that meet your specific needs, while paying as little in overhead as possible. You’re not out to make a fortune on the ‘hot tip’, you’re out to establish a solid investment plan. If you’re young, you should be weighted more towards higher risk growth stocks. If you’re nearing retirement, your money should be in safer investments. Index funds and no-load mutuals are probably the best way to go about this.
Your other task for this type of investment is to make sure you minimize your taxes.
The other way to profit in the market is with high levels of knowledge. For example, investing in a small business in your area of expertise, where you happen to know the people involved and believe they are way above average in talent and initiative. That’s basically what venture capitalists are looking for. But even here it’s very difficult to beat the market, and it’s extremely high risk - new ventures often fail, taking every investment dollar down with them.
If someone wants to take a stab at convincing me technical analysis works, I’m willing to listen. But everything I’ve read about it over the years suggests to me that it’s about as valuable as reading chicken entrails, except perhaps for day traders.
I am sad about Motley fool. It used to be a great site, with tons of good free info, and smart well written objective articles. Now it is just a clearing house for the every twit with a get-rich quick idea, and full of shit.