When considering whether it is worth paying for stock pick recommendations, you need to consider the alternative.
Do you have the time to analyze potential stock picks for days to find stocks you believe are great picks?
Do you have the necessary financial analyst skills to make sound value judgments in a highly specialized area?
Can you be more confident in doing your analysis? Or would you rather trust people who are suitably qualified both in education and, more importantly, experience?
Your experience as an investor may well determine the answer to these questions.
As a newbie facing a steep learning curve, it is my view that it is well worth paying for proven stock recommendations. Lessons learned trading can be costly, and it’s a good idea to leverage other people’s experience and skill levels. As you become more experienced, you may wish to take more control of your portfolio and make the big decisions yourself.
As an experienced investor, you may baulk at someone else deciding what stocks you should be picking. You may love the idea of spending hours every day analyzing stocks. Perhaps you revel in doing deep dives into the ins and outs of companies and staying ahead of world events and technological advancements. More power to you.
In a nutshell, the answer to the question is the usually predictable one – it depends.
Let’s investigate a little further.
What Are Investing Newsletters?
Investment newsletters are what they say they are. They are newsletters that are published periodically.
They usually make investment recommendations, advising which stocks to buy or sell based on their research.
Typically, the analysis is done by a well-known investor with an established track record. He has some credibility in the market and is either assisted by a team or compiles the newsletter himself.
The newsletters also often provide stock market news and relevant financial information. The goal is to provide readers with information that helps them understand market trends and make investment decisions.
An additional goal is to provide sufficient information to keep members subscribing.
Note the distinction between recommendations and education. Paid stock and investing newsletters recommend investing in specific stocks. Often the promise of above-average returns is made.
Educational resources provide you with information that can help you make informed decisions. However, they never promise any sort of results.
Newsletters usually operate on a subscription basis, so they cost you some money as a subscriber.
How Much Do They Cost?
Costs vary widely. Some newsletters cost as little as $100-$200 per year, while others cost more than $1,000 per month.
A word of warning about free newsletters. Anyone can start publishing a stock pick newsletter, even someone with little to no experience in stock trading!
The old saying you get what you pay for holds. So when the price looks desirable, you should be just as wary or more so of free investing newsletters, especially if they recommend specific stocks.
Are There Any Dangers with Stock Pick Newsletters?
Remember that the newsletter pundits are making money. They either make money from subscription fees or in other ways.
There is always the possibility of nefarious practices so treat any stock pick letters with caution.
The Securities and Exchange Commission has issued warnings around the following schemes:
- Pump and dump schemes. Here the newsletter is used to boost the stock price, after which the newsletter sells its stocks, yielding a profit.
- Stock promotions the newsletter is used to promote the stock and is not trustworthy
- Newsletter purveyors could well have an undisclosed conflict of interest.
- False information could be touted as true to affect the stock in a positive or negative light
When deciding whether a newsletter may be right for you, it is best to consider established and credible names in the market with proven track records. If their newsletters are exposed as fraudulent, these companies stand to lose a lot.
There are many such newsletters to choose from, including Motley Fool.
Does Stock Pick Newsletters Make You Money?
There are two simple rules to consider when you invest.
Don’t believe everything you read simply because the author presents himself as credible. People lie.
Secondly, consider that proof of past success does not guarantee future performance.
It is best to consider the advice given in such newsletters as only one avenue of information upon which you base your final decision.
Investment decisions based on solid evidence and information are likely to be better.
Of course, this assumes that you have the time and financial acumen to do the research and make the decisions. Unfortunately, this is often not the case.
Careful selection of a credible, well-established, and proven newsletter service provider may be what you are looking for. However, stay mainstream and at least do some background research before trusting newsletter advice.
What Makes for the Best Investment Newsletters?
If you consider subscribing to a stock pick newsletter, make sure you consider the following:
Track Record
Make sure that the newsletter has performed well over time. Try to confirm figures independently to verify any information provided.
The newsletter should claim to outperform other similar services; otherwise, it’s not worth considering them.
Check for hidden fees and if you discover any, run!
The more transparent the provider is in selecting their recommendations and actual performance figures, the better.
Where recommendations are made, reasons for the likely rise of these picks should be provided to assess for yourself whether you agree with their analysis. Cold hard facts are always a good sign.
Pricing Considerations
The bottom line is that you want the newsletter’s cost to be more than covered by the increased returns.
Since returns are unknown until later, you must review this question once you have performance data.
Educational Value
Some newsletters provide excellent educational value.
This is an excellent opportunity to get to grips with the whys of investing.
You can also pick up tips on conducting your due diligence and improving your skills to assess the viability of stock investments.
What Are The Alternatives To Newsletters?
The alternative to working off stock tips is to either have a broker advise you and invest on your behalf (for a hefty fee) or do the due diligence and stock assessment yourself.
A broker can be retained to manage all decisions for you. However, this is expensive and does not necessarily result in better stock performance, especially once the broker’s fees have been deducted.
Several robo-advisors can help you invest and even propose stock picks for you.
In Summary
Whether a stock-picking newsletter is for you is dependent on your investment style and the amount of time and effort you intend to spend on choosing and managing your portfolio.
Our advice is to stick to well-known newsletters and do your research before committing your hard-earned cash to a recurring revenue stream for the newsletter service provider.