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’….

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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DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.