One of the consequences of South Africa`s reintroduction to the rest of the
financial world has been a sharp upsurge in the number of offshore
investment newsletters that are offered to local investors.
Hardly a week goes by without someone phoning in wanting comment on this or
that newsletter they have received through the post, usually with an offer
to subscribe. The modus operandi of most newsletter editors is to send you
one or two free issues, with a blurb about how wonderful their
recommendations have been in the past.
You can be assured that they will keep very quiet about the recommendations
that have bombed out.
For a while, I received the newsletter of the indomitable Harry Schultz, who
described himself modestly as the "highest paid investment advisor in the
world". His fee for a consultation? US$2 000 (R12 000) per hour.
South Africa`s longest running newsletter is Martin Spring`s Personal
Finance (around for more than 20 years now),while others, such as Len
Gullan`s Hard Asset Digest and the SA Gold Coin Exchange`s letters, have
come and gone in line with the decline of interest in hard assets.
In the United States, there are thousands of investment newsletters. There
is even a newsletter, the Hulbert Financial Digest, that is dedicated to
keeping track of other newsletters.
Mark Hulbert, the editor, has tracked the advice given by other newsletters,
especially those who give specific recommendations on shares on Wall Street.
According to Hulbert, in the 16 years to end 1993, only 16,7 percent of
market-timers have beaten a buy-and-hold strategy.
The same finding was reached by another newsletter that tracks the
recommendations of market-timing newsletters. This letter, The Timers
Digest, found that very few market-timers manage to beat the overall indices
of Wall Street, be it the Dow Jones Industrial Index or the S&P 500, an
index of the 500 largest industrial companies on Wall Street.
Many newsletter writers love to tout the "next big thing" on the stock
market, telling tales of huge profits that await those investors who take
their advice and subscribe to their newsletter.
I think the key to the success of any newsletter is that it whets the
appetite, with claims of big successes in the past and promises of huge
profits in the future. Investors subscribe, send in their money for one or
two years and then move on.
Proprietors of newsletters spend a huge amount of money on direct mailing
their "teasers". Some of these teasers are very good. Craftily written, they
are intended to create the impression that its editor has somehow found the
investment Holy Grail.
My experience has been that few of these tipster-newsletters are worth much.
I prefer newsletters that offer broader-based investment advice on issues
such as new investment products, changes to tax legislation and general
advice.
To try and give tips on the market with any degree of success is difficult,
if not dangerous. A newly launched local investment magazine has recently
been running a portfolio of shares recommended by a leading stockbroker. The
results so far are dismal and the stockbroking firm concerned must be
cringing. Out of the 10 shares tipped on the local market, only two have
risen and anyone who acted on this advice must now be showing a loss.
Newspaper coverage on investment matters has increased so dramatically in
recent years that it makes most newsletters obsolete. And with the added
facility of internet archives, I don`t think you need to spend more money on
a newsletter that not only appears much later, and in most cases re-hashes
what has already been written about.