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Reader Question on Stock Newsletters

by Ram Balakrishnan
September 9, 2007
Reading Time: 1 min read
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The following question is from John:

Can stock newsletters like the Motley Fool really promise 20 plus percent returns? Is there some sort of catch?

First, a clarification: nowhere in the web page does the Motley Fool promise future returns of 20%. They are simply saying that their stock picks are up an annualized 23% and beaten the index over the past five years.

Having said that, I’ve followed the Motley Fool guys for years. I still remember some of their picks for a conservative portfolio in the late nineties: JDS-Uniphase (JDSU), Yahoo (YHOO), Intel (INTC), Microsoft (MSFT) and Pfizer (PFE) etc. You wouldn’t have done very well with some of their aggressive picks like Millenium Pharmaceuticals (MLNM), Celera Genomics (CRA) and Human Genome Sciences (HGSI) etc. either.

The point is not to pick on the Motley Fool but to point out that newsletters have a habit of trumpeting their successes and burying their failures (just like mutual funds). They do this for a very good reason: why would you subscribe if they instead advertised a 10-year track record that barely matched the market’s? Or think about it this way: why are these guys still plugging a newsletter when they can make millions in the stock market by keeping their “secrets” to themselves?

It is incredibly hard to beat the markets and I have no idea if the Gardner brothers will continue to do so. They might but it’s not a bet I am willing to make, much less pay for such advice.

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