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Newsletters

Many investors purchase investment newsletters. Depending on the letter, the cost can be anywhere from $50 to thousands of dollars per year. In return, the newsletter writer offers investment advice about which stocks to purchase and whether or not to be invested in the stock market at all. These letters may come in the mail every week or once a month. Some of the advice is delivered through email, Web sites, and telephone bulletin boards. Some popular examples are The Granville Market Letter, Louis Rukeyser's Wall Street, MPT Review, The Ruff Times, and The Value Line Investment Survey (discussed above).

Is this investment advice useful to investors? Academic studies find that, in general, newsletter recommendations do not outperform the S&P 500 Index. Newsletter recommendations that do perform well usually hurt their net performance because of the high trading costs. That is, many recommendations change so frequently throughout the year that they incur a high cost due to transaction costs. Indeed, the newsletters produce anywhere from a couple to 50 trading signals per year.[14]


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