Watchdog evaluates investment newsletters
By Jay Loomis
The (Westchester, N.Y.) Journal News
Mark Hulbert listened 24 years ago as dozens of market gurus paraded across a stage with claims that investors could double, triple, or even quadruple their money with little risk each year.
He suspected those promises made by editors of investment newsletters at a seminar in New Orleans were wildly exaggerated. That skepticism gave Hulbert, then a graduate student working on a book, the idea of starting a service that would sort the reality from the hucksterism.
"You could tell by their speeches that all of them couldn't be telling the truth," he says.
In the years that followed, Hulbert developed a reputation as a sheriff patrolling a Wild West of newsletters, a largely unregulated world with no credentials required.
His service, Hulbert Financial Digest, tracks the performance of 160 newsletters and 500 recommended portfolios. His rankings of newsletters based on 5-, 10-, 15- and 20-year risk-adjusted returns have earned him fans and detractors.
"Before Mark Hulbert, the ethics in the newsletter business were not that great," says Sheldon Jacobs, editor of The No-Load Fund Investor, which has been among the top performing mutual fund letters. "He helped raise the standards. ... You may not always agree with him, but he calls it like he sees it."
Critics include Bernie Schaeffer's Option Advisor, a newsletter that Hulbert rated the worst performer over the past 20 years. "I think it's reasonable to question their credibility," says Bob Rack, president of Schaeffer's Investment Research, which beat the market for five-year returns last year, based on Hulbert's calculations. "Our experiences with them have not been pleasant. They have never opened up their books to show how they track things."
Hulbert says an advisory board of finance professors and statisticians evaluates the methods of his service. Regarding Schaeffer's, he says he has tried to work with the newsletter to answer the questions.
Most of the controversy happens when newsletters are ambiguous or don't include model portfolios, Hulbert says. In such cases, Hulbert Financial attempts to use the newsletter's advice to construct a portfolio.
"We try to give an objective basis to investors about which newsletters are truly worth following," Hulbert says. "We don't have a vested interest in one newsletter doing better than another."
Hulbert has found most newsletters have a poor track record in beating the market. In fact, about 80 percent of newsletters have lagged the Standard and Poor's index of 500 stocks over the long term, similar to the performance of money managers or mutual funds, he says.
"That has nothing to do with newsletters, just the difficulty of analyzing the market," Hulbert says.
Finding the right oracles, however, can pay off. People who followed the top five newsletters over the past 10 years have seen returns of 241 percent to 514 percent.
A subscription to the Hulbert Financial Digest is $59 and is available at CBS.Marketwatch.com.
