Nate Pile's home office has everything he needs -- plus an aquarium and a washer and dryer.
FIFTEEN YEARS AFTER STARTING the Nate's Notes investment newsletter out of his home in California's wine country, Nate Pile is still picking tech stocks for loyal subscribers around the country. And nearly 30 years after they quit working for a wealthy investor, sisters Mary Anne and Pamela Aden are cranking out The Aden Forecastfrom their home in Costa Rica. But Dan Sullivan has outlasted them all. The founder and editor of The Chartist has been tracking the zigs and zags of the stock market for four decades. And he's still going strong, with 13,000 subscribers coughing up $240 a year for advice on when to take advantage of a rising market and when to bail out.
You might have thought that, by now, the tidal wave of free information on the Web would have drowned subscription-based investment newsletters. But that's not quite what's happened. Indeed, the number of investment newsletters that charge actually increased 60 percent from 2005 to 2008, before leveling off after the financial crisis, according to publication database MediaFinder.com. The fact that they're still around with many charging hundreds of dollars for an annual subscription isn't the only shocker in today's newsletter industry. They're also starting to turn heads with their ability to make people some serious money, in good markets or bad. Newsletter editors say even some hedge funds and analysts have a newfound interest in what they have to say and are quietly buying subscriptions.
Any investor with a brokerage account or 401(k) plan knows the stock market has been a lousy place to park money in the past decade, even with the gains of the past two years. Shareholders who reinvested all their dividends would have seen an average annual gain of 1.4 percent in Standard & Poor's 500 over the past 10 years. Some newsletters provide a stark contrast: Those tracked by The Hulbert Financial Digest have an average annual gain of 3.9 percent over the same period. Many have been helped by being in the right place at the right time, recommending a mix of stocks and bonds or foreign shares and natural resources stocks that have outpaced most domestic stocks. But loyal subscribers also say they've benefited from some savvy calls on when to ride the wave of a rising market and when to get out of the way. Joel Lisansky, a retired electronics salesman in Reno, Nev., says one call prompted him to pull his money out of stocks before the dot-com bust. "That gave me a lot more firepower when I got back into the markets," he says.
Not all newsletters are racing ahead, of course. Some trip up with the same mistakes made by many mutual funds, picking risky stocks that can shoot higher one year only to fall the next. One well-known newsletter, The Value Line (VALU) Special Situations Service,
We searched for newsletters with strong performance and colorful owners.
Photograph by Robyn Twomey for SmartMoney.
The Chartist Mutual Fund/ETF Letter
Working from his office in Los Alamitos, Calif., Sullivan interprets stock market charts the way old-time sea captains read the stars. He's been picking stocks in his original newsletter, The Chartist, since 1969, and he started his mutual fund newsletter nearly two decades later. In both, he tries to predict major market inflections sometimes swinging from recommending being fully invested to holding just cash, within a matter of days. Last spring, for example, he advised subscribers of both newsletters to move entirely to cash. While he didn't "expect Armageddon," he told them he was trying to protect them from a bear market. The market did indeed go down, and both newsletters moved back into the market in November a bit late, Sullivan later said. "We should have gotten on board the rally at least a month earlier," he told subscribers. Unlike many newsletters that use hypothetical model portfolios, Sullivan's clearly shows what he has at stake, disclosing returns on the $1 million he has invested in his model portfolios. Anyone who's going to recommend stocks, he says, "should be willing to buy them."
The Chartist one of the oldest stock market newsletters claims an average annual return of 12 percent since 1982, while The Chartist Mutual Fund/ETF Letter is up nearly tenfold since it was created in 1988, well ahead of the Wilshire 5000 index's sevenfold increase in the same period. That's not to say Sullivan doesn't have his losing streaks. In the worst 12 months for the Mutual Fund/ETF Letter, from late 1999 to late 2000, the portfolio plummeted 23 percent, compared with a loss of 6 percent for the Wilshire 5000 stock index, according to Hulbert.
Of course, Sullivan tries to get out of the market before such dips. Richard Tully, a 75-year-old grandfather who gets both newsletters, says he saved money and slept better by moving to cash when Sullivan recommended it. "Very few people can sit there and watch a $100,000 portfolio turn to $50,000," he says.
The Aden Forecast
The Aden Forecast
The sisters, now in their early 60s, settled in Costa Rica because they like the beaches and the easygoing lifestyle. But their Central American location symbolizes their global outlook as they pick investments for subscribers from Argentina to New Zealand. Like other success stories in the newsletter business, the Adens are good with numbers. They sift through reams of data to create a portfolio that includes global stocks, currencies, precious metals and energy. They try to explain the fundamental trends like the rise of China or the fall of the euro behind the charts.
The Adens, who live within walking distance of each other and their office in a suburb of the capital, San Jos , also have been longtime fans of gold. Although some market watchers think the shiny metal is in the throes of a major bubble, the Adens see it as a safe haven from economic uncertainty around the world. Even after nine years of rising bullion prices, they allocate 40 percent of their model portfolio to precious metals, including mining stocks like Rio Tinto and Freeport-McMoRan Copper & Gold. "If a bear market kicks in," they told subscribers in explaining their position, "we'll want to sell all stocks except for gold shares."
Coolcat Explosive Small Cap Growth Stock
It's not a bad life: Kennedy works from his house in California's sun-drenched Central Valley, a place where almonds and fig trees are more plentiful than stock pickers. "I pick ETFs in my pajamas," he says. Like many market timers, he has hot and cool spells. But it's hard to argue with his long-term results. Although the five-year average annual returns are just so-so for the Coolcat Explosive Small Cap Growth Stock Report, the 10-year record is strong. Kennedy, 54, employs a similar approach in all four newsletters, using his knowledge of statistics to winnow down the list of potential stocks or ETFs to a manageable number.
Kennedy isn't exactly a buy-and-hold investor, as he issues regular recommendations to purchase and sell individual stocks and ETFs. Critics say such a short-term approach can lead to high trading costs and capital-gains taxes. "The most helpful newsletters will show you how to build a low-cost, low-tax, diversified portfolio," says Andrew Metrick, a finance professor at the Yale School of Management. But Kennedy says his subscribers want more-frequent advice about when to get out of the market. About a year ago he ditched the monthly publishing model in favor of e-mailing brief updates to subscribers two to four times a month. "It's easy to buy and harder to sell," Kennedy says. "But sometimes your picks don't work out, and you've got to fold the tent."
Pile's first taste of the newsletter business came when he landed a job stuffing envelopes and answering the phone for a biotech-stock newsletter while he was an undergraduate at the University of California at Berkeley. After graduation, he started his own newsletter focused on small-cap stocks, particularly those in the high-tech and biotech industries. Today he works from a spare bedroom in his home, ensconced between a television blaring CNBC and a 120-gallon saltwater aquarium.
For nearly a decade, Pile toiled away on his newsletter after getting home from his full-time job as a math teacher at a local junior high school. Then, in 2005, he decided that Nate's Notes was bringing in enough money for him to quit teaching and focus on the newsletter full-time. Although Pile has compiled a strong long-term record, he still feels the competition from free websites. He says the circulation of Nate's Notes is in the hundreds not bad at the annual price of nearly $300 a year but not enough to make him rich either. "Subscribers are surprised when I answer the phone, because they imagine I have a staff," Pile says. "But it's just me."
A Family Focus
A Family Focus
While most investment newsletters follow a wide range of stocks or mutual funds, a handful focus on just one family of funds. A sampling:
Editor: Jack Bowers
Subscription: $229 a year
Nearly 15 years after founding Fidelity Monitor, Bowers, 53, still pens this newsletter by himself from an office park near Sacramento. Among the more than half a dozen newsletters that follow Fidelity, Monitor has the best returns over the past decade, according to The Hulbert Financial Digest. Recent issues have covered topics such as sector funds, gold prices and the risk of municipal default. Bowers bought a competing newsletter in 2009, Fidelity Insight.
FOR VANGUARD INVESTORS
Editor: Daniel P. Wiener
Subscription: $229 a year
Wiener has been churning out his monthly newsletter from his home in Brooklyn, N.Y., for more than two decades. The newsletter, with 30,000 subscribers, has four model portfolios composed of Vanguard funds. Together, the portfolios have returned 5 percent a year on average in the past five years; that's well ahead of the returns of the S&P 500. Wiener, 55, says he owns the funds mentioned in his newsletter. "I'm an investor, not a wonk," he says.
MORNINGSTAR AMERICAN FUNDS FAMILY REPORT
Editor: Kevin McDevitt
Subscription: $115 a year
Unlike most investment newsletters, American Funds Family Report doesn't track model portfolios. Instead, it focuses on company news and performance at American Funds, one of the largest fund firms. McDevitt, 37, says the newsletter is popular among financial planners and brokers. (Morningstar also publishes newsletters on Vanguard and Fidelity.)