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Evaluating Paid Investing Newsletters

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Investment newsletters have been around for decades, but questions have always lingered as to their usefulness. We will examine the different types of investment newsletters, pricing structures and availability in an effort to help individuals determine whether or not newsletters can enhance their investment returns.

Types of Newsletters
Any analysis of investment newsletters must begin with an identification of what type of investing is being considered. Broadly speaking, investment newsletters might be broken up into the following categories: individual stock recommendations, market trading strategies, overall market/economic commentary and specialty newsletters (i.e. natural resources focus or real estate focus.)

Many newsletters offer individual stock recommendations based upon some valuation methodology. These newsletters often examine small-cap stocks or even penny stocks, on the theory that these are the securities most likely ignored by the larger Wall Street analysts. Although many of these newsletters tout the incredible gains they have experienced on some recommendations, it is important to examine an overall track record, taking into account performance over a long period of time as well as trading costs and tax consequences.

As with active fund managers, it is likely that the majority of newsletters are unable to outperform the broader market over the long-term; furthermore, it is exceptionally difficult to forecast ahead of time which newsletters will be the best performers. Investors might also wonder why an analyst with an exceptional ability to select undervalued stocks would choose to share that information with the general public. Investors considering newsletters that tout trading strategies should also ask themselves why the analyst is sharing this valuable information, especially when there are easier ways for an exceptional market timer to make a lot of money. Trading newsletters also suffer from a timeliness issue as recommendations may no longer be applicable when they are put into print.

The other two types of newsletters may have more value for investors. In the case of specialty newsletters, investors should beware that they are not simply buying into whatever sector is currently popular (i.e. technology stocks in the late 1990s.) However, some sectors may not be as heavily followed by large company analysts or may require a high degree of specialization. In these instances, a newsletter writer may be able to add value through their analysis. The final broad category of newsletter is those focused upon overall economic and market trends. The quality of these newsletters is dependent upon the analyst's ability, but some newsletter publishers have earned excellent reputations for contrarian thinking over long periods of time.

Newsletter Alternatives
If investors decide that newsletters are not for them, or if they are interested in free alternatives, where should they look? The key for an investor is to select the source that makes the most sense for them and then focus on that source. Unfortunately, the average individual investor may not have access to a full range of Wall Street research. However, most investors can access at least some reports through their brokerage firm, and the internet has provided access to a great deal of additional material, much of it free.

In particular, newsletters commenting on general market and economic trends can be complemented by or replaced by a wide range of periodicals such as newspapers, magazines, websites and analyst research reports. Fewer alternatives exist for market timing and stock selection newsletters; if an investor finds that they are unable to replace the fundamental or technical research contained in a newsletter, they may want to consider a subscription.

Newsletter Information, Pricing and Availability
Once an investor has decided what type of newsletters they are interested in, they must next turn to the question of pricing and availability. Any money spent on a newsletter is money not invested into the portfolio; therefore, newsletter expenses should be carefully managed just like other investment costs. Information does have value though, so if an individual finds that a particular newsletter is helping them manage their investments, the cost may be justified. In general, it is probably best not to subscribe to a newsletter with a long-term contract period until you have ascertained whether or not the newsletter has value to you. That way, if you decide the newsletter isn't helping, you can cancel your subscription without additional expenses.

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Why are investors piling into technology stocks now?

The tech sector has really had a hangover since the bubble. It has taken us almost ten years to soak up excess fiber build-out, and companies have not spent on technology since
everyone upgraded in 1999. Now the infrastructure we have is stretched.

How did the capitalism investors in the the late 1800s help fuel the development of new technologies

J.P. Morgan invested heavily in electricity through Edison R&D as did Westinghouse with Tesala.

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