I've been doing some research into investment newsletters / stock-picking services. I know that Hulbert Ratings audit a large selection of such services and compare their returns over different time periods.
Looking at the results on their website, it is clear that two services stand out, i.e. 1) Nate's Notes and 2) Investment Advisory Service, as having consistently outperformed not only the S&P 500 (by a lot!) but also the Russell 2000, Wilshire 5000 and NASDAQ Composite over different time periods i.e. 3 years, 5 years, 10 years, 15 years and 20 years.
See the information below taken from Hulbert Ratings:
Nate's Notes (Model Portfolio) / Investor Advisory Service / NASDAQ Composite / S&P 500 (with dividends reinvested) Historical Performance:
- 3 years: 27.6% / 24.5% / 23.5% / 18.1% p.a.
- 5 years: 24.0% / 25.6% / 24.0% / 18.0% p.a.
- 10 years: 20.5% / 19.2% / 19.5% / 16.3% p.a.
- 15 years: 15.0% / 14.8% / 13.8% / 10.9% p.a.
- 20 years: 15.7% / 13.5% / 11.3% / 9.3% p.a.
From my research Nate's Notes has been published from the beginning by a single person, i.e. Nate Pile. Also, the Editor-In-Chief of Investment Advisory Service, Douglas Gerlach, has had this position since 2003.
So for both of these services, it appears that the key people that contributed to the strong historical performance of these newsletters are still active.
However, despite their impressive record I don't see these newsletters being recommended much on reddit or many reviews of these services online (i.e. when Google searching "Nate's Notes review" or "Investor Advisory Service" review). What am I missing? Does anyone know the reason for this?
Nate's Notes "Model Portfolio" has out-performed the S&P 500 by more than 6% p.a. over the last 20 years and Investor Advisor Service has outperformed by more than 4% p.a. Compounded over 20 years that's a big difference in absolute returns!
I realise that many people have the view that investors should not rely too much on stock-picking services but rather it's best to learn how to invest yourself and then pick your own stocks following thorough research. My view is that such stock-picking services can be a good compliment to your own research and in the case of these services, potentially an opportunity to learn methods that have consistently outperformed the market over both very long and short time periods.
A number of people recommend The Motley Fool's products such as Stock Advisor. From my research, there does appear to be some evidence that the Stock Advisor service has historically outperformed the S&P 500 index over different time periods (see the academic paper title Evaluating the performance of the Motley Fool’s Stock Advisor™), however I do have the following concerns about The Motley Fool / Stock Advisor:
- Though Stock Advisor has consistently outperformed the S&P 500 since inception, according to the above academic paper, the strongest out-performance was in the first few years i.e. 2002 - 2006. The out-performance has significantly decreased since then.
- The Stock Advisor recommendations are tech heavy so you could argue that the returns of this service should be compared to the NASDAQ Composite which has performed much better during the last 20 years than the S&P 500. I'm not sure if there would still be an out-performance with this comparison.
- Motley Fool have a large number of services. My understanding is that many such services have been discontinued following significant under-performance relative to the index. This would imply selection bias which could be a cause for concern!
- David Gardner's Stock Advisor picks out-performed his brother, Tom Gardner's, by a lot! David is no longer directly involved in stock-picking, therefore it is unclear how the Rule Breakers team will perform without him.
Anyway, the above are my thoughts following some research on stock-picking services. I'm keen to get views on this from the reddit /investing community: particularly on why Nate's Notes and Investor Advisory Service are not more well known / recommended on reddit / online in general.
Submitted September 19, 2021 at 08:09AM by fapstination https://ift.tt/3nUI2RY
