Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 130

Investment newsletters: making sense of stock recommendations

Investors find themselves awash with financial information. It flows from an array of sources – the ASX, companies, journalists, brokers and colleagues – imploring investors to buy or sell a dizzying array of securities, from blue-chips to small-caps and everything in-between.

While many investors turn to financial planners and fund managers to make sense of it all, the growth of SMSFs shows that some people prefer to do it themselves.

And by their side is often an investment newsletter.

Do newsletters deliver results?

These scribes – and there’s no shortage to choose from – promise to guide investors through the financial maze. But which ones add value? And, how can an investor cope when inundated with hundreds of stock picks a year, often from the same newsletter?

Outperforming the market has never been harder. An incredible 90% of the world’s data has been produced in the last two years according to IBM. It is a major driver behind the ‘paradox of skill’: absolute investor skill has risen but relative skill has fallen.

Before 1990, 14% of US equity mutual funds delivered true alpha (or outperformance), according to University of Maryland research. By 2006, the outperformers had dwindled to just 0.6%, even as the total number of mutual funds had increased. By 2014 in Australia, the majority of active managers in all categories (barring small-caps) failed to beat their comparable benchmark indices over the three and five-year periods, according to the SPIVA Australia Scorecard.

In this environment, expecting a hot stock tip to lead to riches is an unrealistic expectation – yet this is how many investors use investment newsletters.

The upside down funnel

Too many investors begin with stock recommendations and only then begin the research process by evaluating a security’s underlying fundamentals.

It effectively creates an upside-down funnel which limits the breadth of investment choice and leads an investor into unwitting behavioural biases. These include confirmation bias (where investors overvalue information that confirms pre-existing beliefs) and availability bias (where investors give greater weight to recent information).

Instead, investors should take a step back and first define their personal investment goals and beliefs.

It need not be a complex exercise. The starting point to finding out who you are as an investor can often mean defining who you’re not.

For example, most SMSF trustees have a long-term investment horizon, want to generate income, and don’t want to risk heavy capital losses. This type of investor should be wary of investment newsletters which have a track record of returns built on recommending volatile or speculative stocks.

Knowing who you are ultimately rests on a knowledge of the fundamentals. At its core, stock picking advice begins with an analysis of a company’s financial data. Analysts run those numbers and, in combination with their own qualitative view, rate a stock a ‘buy’, ‘sell’ or ‘hold’.

Most investors don’t pay enough attention to those numbers. For example, a value-oriented investor should analyse factors such as where the price-earnings ratio, or price-book ratio, ranks relative to the company’s sector and the broader market.

However, a growth-oriented investor should be more focused on the company’s (realistic) earnings and dividend growth potential, which is partially captured in the PEG ratio (price-earnings ratio divided by growth), as well as factors such as return on equity.

Those examples are purposefully simplified. Each investor’s exact criteria can only be defined through careful study and personal experience. Without that, an investor will be doomed to automatically act on recommendations which will inevitably lead to poor outcomes because they don’t truly understand the basis on which they were made.

There is another benefit to knowing your own investment style – a far broader array of securities can now be filtered across the entire market. It immediately rules out unsuitable recommendations or the latest hot stock grabbing media headlines. ‘Decision fatigue’ is also reduced when an investor no longer has to weigh up dozens of stock recommendations and opinions.

The funnel is now the right way up.

Fine-tuning the advice

From here, an investor can start to fine-tune the flow of information to maximise the value they receive from investment newsletters.

It can be confusing to subscribe to several newsletters offering conflicting trading advice. A better strategy may be to use one stock-picking newsletter, aligned with an investor’s own investment beliefs, and supplement that with investment newsletters offering a different intent. Cuffelinks, for example, promotes discussion around market dynamics and various investment strategies, while some others are centered on the expertise and personality of one individual. For example, the Switzer Report’s Peter Switzer (generally bullish) or the Eureka Report’s Alan Kohler or John Abernethy (generally bearish). Which type of investor are you?

Similarly, some sources have particular areas of expertise, whether it be specific stock sectors or just a broad economic perspective. Bell Potter’s TS Lim is a highly respected bank analyst and his advice is well-followed, but investors don’t turn to him when they’re assessing resource stocks.

This type of deep quantitative analysis on a sector-by-sector basis is usually more revealing than qualitative analysis, just as original sources of information tend to have more value than aggregators, which often impart their own spin and leave out the original data.

Finally, judge an investment newsletter on its success. No-one can outperform all the time, but over the long-term, skill always shines through. Investors can also take some comfort when experts are also investors who back their recommendations with their own money because they’re on the same ride too.

There are no shortcuts to investment success but using market information in the right way is a great start.

 

Arnie Selvarajah is the Chief Executive of Bell Direct. See www.belldirect.com.au.

 

  •   16 October 2015
  • 2
  •      
  •   

RELATED ARTICLES

From stockmarket boom to stockpicker’s opportunity

10 key investment themes for 2022

10 key themes for 2021

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

Is it time to bail on Australian stocks?

For generations, Australian investors have backed banks, miners and dividends. But has that loyalty come at a cost? A look at the numbers raises an uncomfortable question about where future returns will come from.

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Latest Updates

Planning

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Superannuation

There's a reason why your super is locked up until your 60s

For decades, it seemed settled. Then one controversial idea reignited a debate that could reshape the financial future of millions. The real question isn’t who’s right or wrong, but whether a long-held assumption deserves another look.

Property

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Retirement

Under-retiring: The greatest retirement risk in a generation

Two retirees. Similar savings. Completely different lives. New research from Challenger reveals why some Australians confidently spend in retirement while others hold back and the overlooked factor shaping retirement decisions.

Five risks to watch in markets

Things you may often hear are: a recession is around the corner, markets are overpriced, the AI sector is about to flop at any moment. It’s like the never-ending laundry pile that sits in my house, it never really disappears.

Investment strategies

Do you qualify as ‘rich’?

What does it mean to be 'rich'? For something so universally desired, it is surprisingly difficult to define. That ambiguity creates a challenge for investors and raises a bigger question about what financial success really looks like.

Investment strategies

If you’re worried about your bond portfolio, you’re missing the point

Most investors think they know what bonds are for. But when markets turn volatile, a surprising misunderstanding can lead to costly decisions. Here’s the overlooked lesson that could change how you view your portfolio.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.