For a DIY investor finding your own stocks can take a lot of time, so you will probably need to sign up to some investment newsletters. If you are looking at signing up to an investment newsletter or website, there are a few points to consider.
Long term returns
When looking at managed funds you will usually be able to find the return per annum (the average return per year) over one, three, five years and since inception. But with investment newsletters it may not be so clear. Generally, if the newsletter has a good track record it will be transparent about the returns on the stocks it recommends. Returns should be easy to find and expressed as the percentage return per annum. Look at the since inception return as it is obviously the longest period.
Needless to say, if the newsletter will not reveal returns you should probably pass. Some examples include: ‘You have to sign up first before we can give you our return’ or ‘we don’t give out an annual return as we don’t know which recommendations our clients take.’
An investment a month
Investment opportunities don’t come along like clockwork, they happen with market and company changes, so be wary of newsletters promising a new stock recommendation every month or a certain number of recommendations over a period of time. A dearth of investment opportunities will invariably lead to lower quality recommendations in these cases.
Skin in the game
A good sign is if the newsletter buys its own recommendations. You can see in the disclosure usually at the bottom of the page what stocks the analyst owns. This can also be helpful as they may recommend certain, usually riskier stocks, but not actually own the stocks themselves. This is not necessarily a bad sign, but something to keep in mind.
Make up your own mind
With investment newsletters, you should not necessarily invest in each recommendation blindly, even if they have a good track record. If you have a different view due to your investment style and philosophy and don’t agree, you should go with your gut when choosing to invest or not.
And remember that an investment newsletter is an investment cost, so you can deduct the cost from your taxable income.