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A Dirty Secret of the Newsletter Business

By Porter Stansberry
Wednesday, May 30, 2007

Before you commit to reading these thoughts, it's only fair to give you a warning.

What lies below - if you believe it - will probably disappoint you and may even insult you. On the other hand... it might also make you rich. You see, I plan on discussing a dirty secret of the financial publishing business.

We know a lot about our audience - you. We know what kind of marketing works. We know what kind of products will sell. We know from years and years of testing and rigorous statistical analysis of the results. (If we didn't know these things, we'd quickly go out of business.)

After 11 years in the business (eight of them as a publisher), the one thing I know for certain is that more people want to buy information and advice that's bad for them than want to buy information that will actually help them make money.

While this may not be true of you personally, I know with 100% deadeye certainty it is true of the newsletter-buying community. The emotions that lead you to be interested in newsletters (fear and greed) are the same emotions that will destroy your chances to succeed as an investor.

Case in point: Last year, at an expensive investment conference with thousands of attendees, we gave a presentation about our Extreme Valuenewsletter and its amazing track record. (Roughly 26% annualized gains, less than five total losing positions over five years.) We explained our methodology. We showed why what we do in Extreme Value is inherently safe and profitable. Then we offered to sell the letter at half price.

Less than 5% of the attendees took us up on our offer. (We also extended the offer to all our subscribers. Less than 1% of our subscribers took us up on it.) Instead, the conference attendees were drawn like flies to the booths of penny-stock mining companies where, at just $2 per share, they're almost guaranteed to lose all of their money.

From these and hundreds of other marketing experiments, we know newsletters that promise information about super-risky options trading, or super-risky penny stocks, or fly-by-night gold mines in Africa will sell far better than Extreme Value, where Dan Ferris delivers big gains without taking on hardly any risk.

It's not just Dan who has trouble selling success. Chris Mayer, Chris Weber, and John Doody are all world-class editors with excellent track records... and they struggle to build a broad audience.

Given these facts, some savvy publishers have simply abandoned any responsibility for the quality of the investment advice they publish. I've spoken to these very smart and sincere people personally about the poor quality of their products. They say: "We can't know, in advance, whether or not any investment advice will work. And we don't warrant results. We let the readers tell us what kind of publications are 'good' and what kind of publications are 'bad.'"

Such moral theories lead to products like a certain options newsletter that recommends buying naked put and call options, but offers no advice whatsoever on when to sell them.

The track record that's marketed to potential new subscribers shows what could be made, hypothetically, if you sold each recommendation at the very highest possible price. No one, of course, could actually do this. However, based on the product's sales (it is one of the very best-selling letters in our whole industry) and the relatively low demand for refunds, its publisher can rightly make an argument that it is a "good" product.

I haven't yet reached the point where I'm willing to publish letters that I believe are bad for people even though they might sell well. I'd much rather sell safe, incredibly useful publications like Extreme Value.

Good investing,


Market Notes


For the past two years, direct bets on rising commodity prices have been as profitable as selling condos in Baghdad.

You can see this futility in today's chart of the widely followed Commodity Research Bureau Index (the CRB). After starting spectacular run in 2002, commodity prices have essentially moved sideways since early 2005. Commodity stocks, on the other hand, have been on fire...

Although the CRB index has treaded water for two years, raw materials in general are still 50% higher than they were in 2002. These elevated prices have turned the ExxonMobils, BHP Billitons, and Anglo Americans of the world into giant cash machines. Since the spring 2005 peak, ExxonMobil is up 52%... BHP Billiton is up 100%... and Anglo American is up 162%.

No, commodity prices aren't soaring anymore, but the sun is still out and shining brightly on the world's commodity producers.

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