Six Reasons Newsletters are NOT Investments

If you’ve looked into futures trading at all, you have, without a doubt, stumbled across an advertisement begging you to “invest” in a newsletter. They’ll make claims like:

  • My clients made 4,236% last year following my suggestions!
  • All of my suggested trades last year were winners!
  • You’re guaranteed to make money!

Don’t ask us how these are compliant with NFA regulations, because we don’t have an answer. More importantly, don’t fall for it.

A newsletter is not an investment. It is merely another form of bait to lure investors interested in commodities exposure into a realm fraught with risk and requiring a great deal of knowledge for success.

Don’t believe us? There are six very good reasons to never give a cent to the people publishing these foolproof money making strategies:

  1. Where is the track record? When you invest in a trading system or CTA, you can see results (live or hypothetical) to help you get comfortable without it functioning. With a newsletter, the only track record you see is the one they show you- often in the form of testimonials you have no way of verifying.
  2. Are their fees included in their performance? In managed futures it is, but newsletter producers are not required to tell you what you would end up making after the cost of their service is added in. Most don’t. When a year’s subscription can run you $1,000 or more, that matters.
  3. Most of that information is free, anyway. The internet is a beautiful thing, because you’ve got a million voices chiming in at any given moment on any given subject. If you really want someone else to give you advice on where to buy, there are plenty of experienced folks giving away their opinions for free (but we still don’t recommend that- see #6).
  4. If these guys were any good, they’d be registered as a CTA. It would make them more money than a newsletter, so why not just manage money? The answer is often that these individuals are not as fantastic as they make themselves out to be.
  5. Their forecasting records are always suspect, in our opinion. It’s really easy to come up with a record that would make Bernie Madoff envious. All you have to do is put out forecasts under different names and then cherry pick the results into a pretty little marketing package. These kinds of scams aren’t new, either, but they keep on coming back for more. This concept is described very well in Fooled by Randomnessby Nassim Taleb (which we highly recommend, if you haven’t read it yet). This is a classic move for people peddling ‘betting picks’ for football. They’ll boast, “I went 10-0 to finish last season, follow me this year for only $xx!” Did he really go 10-0, or did 1 newsletter he offers does go 10-0, another 5-5, and another 0-10? As the NFL season kicks off tonight (C’mon Saints- make Bears fans feel better by destroying the Packers!), we don’t know about you, but we are not about to validate this approach- in sports OR investing.
  6. Trading retail is just a bad idea. In our experience, 100% of retail futures traders lose money. Managed futures can lose money as well, but if it comes down to a newsletter written by a guy you don’t know whose background you can’t verify telling you to place trades you don’t understand for an amount of money you can’t even begin to comprehend, or hiring an expert with years of experience and government required transparency… well, we know where we’d rather see our money.

All of this speaks to another very important point- there’s no reason for you to have to do all of the due diligence on all of the newsletters, systems and CTAs out there when you’ve got brokers doing research around the clock for you…. at no additional cost to you.

We’re not sayin’… we’re just sayin’….

2 comments

  1. Hey, Lauren- what you say about 100% of retail futures clients losing money is just not true. Was a retail broker in a past life and lots of them made money. Some on their own, some following my recommendations. Your experience may be different, but if so it’s not totally representative.

    Chris
    Blackheath Fund Management.

  2. Chris,

    Thanks for reading and commenting. Our comment on retail traders all losing money relies on the big picture view. Unless they’re planning on making a profession of it (and sometimes even then), our experience has painted a very different picture of how retail traders end up doing in the long run. Perhaps 100% could be viewed as hyperbole, but we’d be willing to wager that, in the aggregate, it’s not too far off. From what we’ve seen, successful retail traders are the exception- not the rule.

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