First of all please read this piece on gold by David Kotok:
http://www.cumber.com/commentary_archive.aspx
When David writes (or speaks) I listen.
I recently read that legendary investor Martin Zweig had died. The event was broadcast on cable news CNBC and he received many accolades. Many years ago (early 1990's) I subscribed to Mr. Zweig's investment newsletter. At that time, according to Mark Hulbert, the Zweig Forecast had an excellent track record in picking stocks. Zweig used quanitative methods which attracted me since I also had a background in mathematics.
Unfortunately this and other newsletters have a serious intrinsic flaw. Mr. Zweig had a hotline which recommended individual stocks and general strategy. Unfortunately when you received a stock recommendation you could not buy that stock (when the market opened) at the recommended purchase price. The reason is simple. Immediately following the newsletter advice the market would move since people would place market-based orders (instead of limit orders). The bottom line is that you would never get the stock at the recommended price point. The same happens on the sell side. This is commonly called "market impact". In the mean time the newsletter records a purchase at the recommended price. The subscribers are left out to fend for themselves. What happens when the investment returns are compiled for the newsletter they are based on the recommended prices. Clearly there is a "disconnect" between what happens in reality and what happens on paper. This is the reason that I no longer subscribe to any newsletters. I do (and will in the future) subscribe to stock compilation advisory services. These would be like VALUELINE, STANDARD AND POORS, ZACKS, etc. These subscription services differ in the sense that they compile large amount of financial data for many (read 1000's) of companies.
The bottom line is to be very cautious of investment newsletters.
No comments:
Post a Comment