Can you trust free stock market newsletters? 

Should you trust the free email newsletters that many stock market publishing houses send out like there’s no tomorrow? 

I have been regarding a few of them for a long time from different publishers and have noticed that most of the time when they slip out a free recommendation of a stock that they currently have in their own portfolio is usually for two reasons and neither one is not because they want to help you.

1. They recommended a stock to their readers a week or two ago and the stock has either sank or hit a resistance and they need your help to get it going again.

2. It’s a long ago recommendation that is sinking and now they need your help to get out of this jam.

Also you must be aware that even if you do get a good free recommendation, these letters will not tell you when to sell this stock. Actually they want you to keep holding it as long as possible so that they can sell it for profit. They may even decide to get rid of a stock that is in the red, but before selling it they will try to create some hype over the stock to get it temporarily up, and after it perks up they will sell it leaving you holding the bag. This is exactly the same that many stock email spamers and discussion boards do, they hype a stock and after it jumps the people in the know sell it leaving unsuspecting small investors holding a worthless stock. 

Below is a typical free recommendation that sounds very innocent and not pushy at all, but it has very clever bait that many people get hooked on:

“As at least some of you know, XXXX has been a core recommendation of my newsletter, XXXX, since early XXXX. Sales fell short of expectations in the fourth quarter, and the company gave a tepid forecast for XXXX – which seems sensible given headwinds that the world seems to be facing.

I don't have a forecast for XXXX sales in XXXX, but I didn't when I recommended XXXX, either. I recommended XXXX because it is the world's leading XXXX company, it was incredibly cheap (and is incredibly cheap again), and I'm certain that in the future the world will buy more XXXXX than it does today. In other words, you don't have to be right about too many things to do well in XXXX over time. 

So... do I care that the stock has pulled back? Not really. We bought at a great price ($XXXX). Even after falling close to 30% from its high, XXXX is still trading above where I first recommended it. 

Should you buy it now? Only if you're looking for a super high-quality, blue-chip company. And only if you're reasonable about the likely future returns and your holding period. Buying now, I think you're likely to make around 20% a year (on average) over the next five years.”

This is how many newsletters use you and your money for their profit. Yes it’s possible that you could make 20% with this stock over time, but just remember that they will hardly ever recommend a stock that is doing well at that particular time. There is usually a catch.

Besides this statement was not true: “Even after falling close to 30% from its high, XXXX is still trading above where I first recommended it.” This free recommendation was on their weekend edition and the stock in question closed on Friday $0.35 below their purchase price. (May be the letter was written before the close?)  On top of this there is also a great likelihood that the market slide will continue, since it is mid January 08 right now. They might be hoping for a bounce to sell this stock at a small profit?

Some other warning signs: You don’t have to hype a good profitable letter with totally ridiculous promises of free money or 900% results. If you receive a new super duper secret (too good to be true) news letter add every week from a publishing house that may mean they are just making money with their letters and not the stock market. I am sure you count how much money some of these publishing houses are raking in. Several thousands of members at hundreds or even thousands of dollars per member!

Don’t subscribe to a new letter that has no money back return policy. If they don’t offer a free look that is for a reason; usually they either are not profitable or their system is too difficult to implement in real life. (Many letters look very good on paper, but are just about impossible to follow. Or in order to make money with them you would had to be with them from the get go. In other words it will take years to get fully invented with them because they recommend a new stock only once a month.) 

Also if they use fear as a main thrust for selling their letters it is not a good sign. It’s fairly easy to paint the future so bleak that it looks like the sky is falling and scare people to buy something, but that usually means that this company is more concerned about making money than your well being. A respectable publishing house would never use scare tactics or hype to sell something.

There is nothing wrong with subscribing to a good reliable honest newsletter. When reading a stock website, you can tell on your gut level if you can trust it or not. Follow that feeling. If they use scare tactics, hype or promise too good to be true results I would be careful. Good letters have all their results easily accessible not hidden or that in order to get the results you would have to subscribe to them. If they ‘scream’ that they made 300% on this stock and 250% with this one is a trick to get you hooked. If a newsletter really is profitable they will publish ALL their results openly, if they don’t show them openly they are not profitable. Why would they hide good results?

Select a turtle rather than a rabbit. Rabbit, in other words a letter that is good one year is often so because they just got lucky with one or two stocks. Next year they (according to Mark Hulbert) usually are at the bottom of the deck. So analyze their method and results as to why they are profitable right now. Is it because a lucky stock pick or two, or is it something their system can produce year after year? There are some sectors that can be profitable for a long time though, like PM and energy sectors are right now.

Take care of your money and invest it wisely. Take an advantage of free trial periods that most letters offer; cancel without any hesitation if it’s not what you want. Stock market can be a great place to be in both bull or bear markets if you have the right help. Look for a system that can make money on a bear market too. If you are not too greedy, don’t expect the moon and look for a stock market system that is based on TA (technical analysis) rather than the author feelings about some stocks you will have a good chance to make some money.

For more info on my books: Timo Amazon eBooks

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