What Is a Market Letter?
A market letter is a short publication that informs investors and other stakeholders, often via paid subscription, about a particular category of investments. Market letters will typically focus on a specific area of investing, such as growth stocks, value stocks, or real estate. A real estate market letter, for example, might provide commentary on market trends and Real Estate Investment Trusts (REITs). A market letter regarding growth stocks may inform individuals on a selection of stocks that are poised for significant growth in the future.
- Market letters are publications that provide information and advice about particular types of investments.
- There are thousands of market letters to choose from, covering a wide variety of investment types, that can help guide an investor into making investment decisions.
- Most market letters underperform their stated benchmarks but can still provide insight into various segments of the financial sector.
- Anyone can start a market letter, so readers should be careful to avoid unscrupulous or ineffective publications, particularly as there are so many publications on the Internet.
How a Market Letter Works
There are thousands of market letters available online, covering asset classes ranging from stocks and bonds to alternative investments. While many market letters recommend individual investments, others focus on educating the reader on select investment strategies or industry sectors.
The quality of information given can also differ widely. Anyone can start a market letter, so readers should consider the track record of the author as well as any conflicting interests they might have.
Newsletters tend to proliferate around hot or new sectors, such as cryptocurrencies and blockchain. Investors would do well to keep in mind that these markets and technologies are so new that there are few experts with long-term track records. Therefore, it can be especially difficult to identify credible market letters within these sectors.
Readers should be particularly cautious when dealing with specific investment recommendations. After all, an unscrupulous publisher could take advantage of their readers, such as making insincere recommendations as part of a pump and dump scam.
Subscribing to a Market Letter
Most market letters require a subscription and the way they are set up varies from one to another. Many companies or individuals offer market letters with free advice but require a paid subscription for other articles on the platform; particularly those that contain the specific investment recommendations.
Other offers may include a portion of the article for free but then to continue reading (often where the important parts are) require a subscription or a payment in some form or the other. After all, companies and individuals offering investment advice are looking to make a profit on their knowledge.
Real World Example of a Market Letter
Some financial service providers help readers select which market letters to follow by tracking those letters’ performance. They do so by evaluating how well investors would fare if they followed the advice of those letters.
Hulbert Ratings (formerly known as the Hulbert Financial Digest) is a popular source of information on market letter performance. The publisher, Mark Hulbert, told Kiplingers in 2016 that fewer than 10% of the market letters followed by his publication beat their stated benchmarks.
To help guide readers toward letters with relatively good performance, Hulbert Ratings publishes an “Honor Roll” featuring the year’s best letters. Examples from the 2020-2021 Honor Roll include Bob Brinker's Marketimer, The Investment Reporter, Investor Advisory Service, and Wilshire 5000 Total Return Index.
The honor roll is constructed by breaking down the performance of the stock market into "up" and "down" periods and looking at how each newsletter performed on average during these periods. The market letters included in the evaluation have a heavy focus on U.S. equities.
Like any investment decision, it is best not to follow only one source blindly, but rather to perform a thorough amount of research on a variety of sources. In addition, it is also recommended to conduct your own research by studying the financials of companies as well as the industries they operate in. On top of this, professional, trusted, and certified financial advisors are always able to provide additional advice.
There is a tremendous amount of information in the world now, cutting through the noise and bad advice is a critical aspect in making good investment choices today.