Sunday, November 9, 2008

Newsletter Recommendations Fall Short Of The Market

Investors obtain investment information from a variety of sources. One source is the advice disseminated from investment newsletters. Mark Hulbert of the Hulbert Financial Digest, tracks the performance of newsletter recommendations. His analysis indicates most newsletter recommendations tend to underperform the market.

The American Association of Individual Investors recently wrote about Hulbert's findings for the period ending June 30, 2008. The analysis covers the 17 newsletters that have been in existence since 1980. A snapshot of the table is detailed below or one can review the full screen here.

Hulbert newsletter performance June 2008

  • The table shows that just four newsletters (24%) were able to beat the overall stock market on a risk-adjusted basis, where the market is measured by the DJ Wilshire 5000 total-return index.

  • This percentage shrinks slightly—to 21%—if we take into account the 12 services that the HFD was tracking in 1980, but which are no longer tracked, two of which were ahead of the DJ Wilshire 5000 index when they dropped off the HFD’s monitored list.

  • As low as this market-beating percentage is, it is higher now than it was before the bear market began in 2000. For example, as of June 30, 2000, the point at which the HFD had exactly two decades’ worth of performance data for this group of newsletters, the percentage ahead of the DJ Wilshire 5000 on a risk-adjusted basis was just 8%.

  • The reason this market-beating percentage has grown from 8% to 21% is not that the newsletter editors have become better advisers. Instead, the reason has to do with the 2000–2002 bear market, and the associated tendency of advisers to have an easier time beating the market when it is declining compared to when it is rising.

Hulbert concludes that newsletters and advisers (mutual funds) have a difficult time beating the market over long time periods. In the end he recommends indexing. The recent protracted and steep bear market would be a good reason not to simply index. Following a dividend growth type investment strategy would have significantly outperformed an index investment. One key to individual stock investing is to follow a discipline that places the emotional aspect of decision making on the sidelines.

Source:

Long-Term Newsletter Performance: It’s Not Easy to Beat the Market
American Association of Individual Investors
By: Mark Hulbert
2008
http://www.aaii.com/includes/DisplayArticle.cfm?Article_Id=3525&digit=599


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