After the stock market closed on Nov. 30 with the Dow Jones Industrial Average at 3683.95, the “late-entry model” of The Chartist Mutual Fund Timer (310-596-2385), a fund newsletter, flashed a “buy” signal.
It was intended for subscribers who did not act on its “long-term buy signal” of Jan. 24, 1991, editor Dan Sullivan explained.
At about the same time that he advised his readers by Mailgram or hotline to buy, or remain fully invested in, equity funds, Donoghue’$ Moneyletter’s “Donoghue Signal” switched to “sell.”
Designed by publisher William E. Donoghue for long-term investors “seeking higher returns at lower risk,” the Signal told its followers to sell their Columbia Special, Oakmark and Twentieth Century Ultra funds and move into money market funds.
Conflicting advice
If you had subscribed to both newsletters and had money in one of the above funds, you could have been confused.
For that matter, if in November you also had received promotional literature for Donoghue’s Moneytalk, an audiocassette service, you could have been further confused about which Donoghue advice to heed.
“I no longer recommend money funds as part of your investment portfolio,” Donoghue said flatly in a “Dear Conservative Investor” form letter included in the mailing. Yet the Signal Portfolio Commentary in the January issue of Donoghue’$ Moneyletter insisted, “We expect to remain in money funds for the foreseeable future.”
While such apparent conflicts in published investment advice from an individual adviser may be unusual-Donoghue sold Moneyletter in 1989 to Britain’s IBC but remained its publisher-differences among various advisers are fairly common.
That being the case, if you are thinking about subscribing to a newsletter for general advice or specific recommendations on which funds to buy-and when to buy or sell them-how do you pick one?
Looking back two months later, with Columbia Special and Ultra up over 10 percent but money market funds still only yielding around 2.7 percent, you might conclude, for example, that Sullivan’s newsletter is superior to Donoghue’s, or that one should follow one of the Moneyletter (800-445-5900) strategies that has called for remaining in equity funds.
But, as in the case of selecting funds, you really need to look at more than short-term records in choosing newsletters. You need to compare the total returns that you would have achieved over a longer term if you had acted on the advice of newsletters that recommend mutual funds, and to size up the riskiness of their strategies.
The best way to begin is to study the Jan. 31 issue of The Hulbert Financial Digest, an Alexandria, Va.-based newsletter (703-683-5905) that tracks fund letters’ recommendations and calculates the pretax returns they should have produced for readers who acted promptly.
The Jan. 31 issue lists 29 newsletters that recommend mutual funds exclusively and have at least one model fund portfolio with a five-year record.
Of their total of 67 recommended model portfolios, only 14 (offered by nine newsletters) beat the 14.6 percent average annual return of the Wilshire 5000 Index for the last five years.
All of the top three-the Select System of Jack Bowers’ Fidelity Monitor (800-397-3094), the Fidelity Select portfolio of Jim Schmidt’s Timer Digest (800-356-2527) and Peter Eliades’ Stockmarket Cycles (800-888-4351), with average annual returns for the period of more than 25 percent-invest only in Fidelity’s Select Portfolios, which can be more volatile than more diversified funds.
All three portfolios achieved their records by being invested in only one fund at a time, but Bowers decided in October to split his Select System into three “to reduce downside risk.”
Eliades’ and Schmidt’s portfolios were in American gold or precious metals and minerals for much or most of 1993 but got out of these high fliers last month.
Bowers, who avoids metals funds, made several switches last year. The most profitable: two stays in telecommunications. (Currently, he’s in home finance, automotive and technology.)
