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Investors: Read with caution


ROB CARRICK
Saturday, February 03, 2007

Note to people looking for investing help: Stock-picking newsletters can be a great investment as long as you understand their limitations.

That's the lesson of the Portfolio Strategy column's second annual snapshot review of six newsletters aimed at mainstream investors. Over all, the six newsletters did good work in generating competitive returns for investors. But several ran into difficulties when they ventured beyond Canadian blue-chip stocks.

Several newsletters were conspicuously unsuccessful in the U.S. market, for example. Others had a hit-or-miss experience with small-capitalization or penny stocks. For readers, the lesson is to understand a newsletter's core strength and be wary of picks outside that area.

The six newsletters were evaluated by monitoring the performance of the "buy" recommendations they offered either in January, 2006, or in their annual forecast edition. An imaginary $100 was invested in each recommended stock at the start of the year, or on the specific dates the newsletter issued its picks. Stocks were held for the entire year, unless a specific "sell" recommendation was issued.

Final results, which include dividends, were tabulated using the portfolio tracker on GlobeinvestorGold. Additionally, each newsletter was assigned a "success ratio," which shows the percentage of total picks that made money.

Now to the results.

First place: Stock Pickers Digest

Number of picks: 14

Return: 26.1%

Best pick: Yamana Gold, up 89.9%

Worst pick: Tahera Diamond, down 66.2%

Total winners: 11

Total losers: 3

Success ratio: 78.5

Overview: A super performance by this newsletter for speculative investors who are willing to invest in companies of all types and sizes. Whereas other newsletters may stumble when delving beyond tried and true blue chips, Stock Pickers Digest seems right at home.

Hits: The publisher of this monthly, Patrick McKeough, showed a deft touch in combining big scores on large-cap U.S. names like Wendy's International and Avaya with mid-size Canadian stocks like Metro and junior resource plays like Gabriel Resources

Misses: One flameout, Tahera, isn't too bad for a newsletter that walks on the wild side.

Over all: This newsletter's picks made 40.9 per cent in last year's survey, so there's certainly some expertise at work here.

Cost: $168 a year

Info: 416-756-0888 or 1-888-292-0296

Second place: The Investment Reporter

Number of picks: 25

Return: 15.8%

Best Pick: Aur Resources, up 109%

Worst pick: PFB, down 27.2%

Total winners: 21

Total losers: 4

Success ratio: 84

Overview: At the end of 2005, this venerable 65-year-old weekly newsletter from MPL Communications issued a list of 25 "market-beating" stocks for the year ahead. The Investment Reporter can be said to have delivered for its readers.

Hits: Aur was huge, but there were lots of blue chips like Canadian Imperial Bank of Commerce, Finning International, Fortis and Manulife Financial that delivered gains of 15 to 30%

Misses: Here's an example of a newsletter that is less useful when it strays from its specialty in conservative, blue-chip investing. Five U.S. stocks were recommended and the average gain was just 5.3%.

Over all: The Investment Reporter did what it does best in 2006 -- provide solid guidance to investors who want help in choosing blue-chip stocks.

Cost: $327 a year

Info: 1-800-804-8846C outside Toronto; 416-869-1177 in Toronto

Third place: The Successful Investor

Number of picks: 13

Return: 11.4%

Best pick: CIBC, up 29.9%

Worst pick: Nova Chemicals, down 14%

Total winners: 11

Total losers: 2

Success ratio: 85

Overview: This monthly newsletter is part of the same family as Stock Pickers Digest, but it focuses more on mainstream, buy-and-hold investing. .

Hits: Several blue chips with gains of 20%or more were recommended by this newsletter, including Alcan.

Misses: Torstar was the only money loser besides Nova Chemical.

Over all: Another good choice for investors who want help choosing basic blue chips.

Cost: $139 a year.

Info: 416-756-0888 or 1-888-292-0296

Fourth place: NA Marketletter

Number of picks: 13

Return: 10.8%

Best pick: Solitario Resources, up 70%

Worst pick: Mines Management, down 20.5%

Total winners: 5

Total losers: 8

Success ratio: 38.5

Overview: Middling returns and a comparatively low batting average from this newsletter, which issues periodic e-mails with "buy" and "sell" recommendations based on technical analysis (interpretation of a stock's price and volume moves).

Hits: Solitario, a Colorado-based mineral exploration company, was a big home run, but Inco and Orbital Sciences, an aerospace company, also did well.

Misses: No disastrously bad picks, just some mild missteps.

Over all: Users of this newsletter need to be nimble traders who understand that some picks won't pan out.

Cost: $19.95 (U.S.) a month

Info: na-marketletter.com

Fifth place: The MoneyLetter

Number of picks: 12

Return: 10.4%

Best pick: AlarmForce Industries, up 23.8%

Worst pick: CHC Helicopter, down 10.7%

Total winners: 11

Total losers: 1

Success ratio: 92

Overview: In last year's newsletter scorecard, The MoneyLetter came in first with a 42.4-per-cent return that was built on some clever picks focusing on energy, gold and China's economic boom. This year's choices were more mundane, and so were the returns.

Hits: The MoneyLetter's January, 2006, picks were heavily weighted toward blue chips, but its excursion into the small-cap realm with AlarmForce yielded excellent results.

Misses: Other than CHC, the worst you can say about the MoneyLetter's picks was that a few were lacklustre.

Over all: Historically, a 10.4% return looks good. It looks even better when you consider that only one stock pick lost money.

Cost: $157 a year

Info: 1-800-804-8846 outside Toronto; 416-869-1177 in Toronto

Sixth place: Internet Wealth Builder

Number of picks: 8

Return: 2.1%

Best pick: Fortis, up 25.1 per cent

Worst pick: Handleman, down 45.6%

Total winners: 5

Total losers: 3

Success ratio: 62.5

Overview: Judge this weekly newsletter from investing expert Gordon Pape by its Canadian picks and you end up with a market-beating return of 17.6%, which would have placed it second among the six newsletters. Where IWB ran into problems was in three money-losing picks in the U.S. market.

Hits: Four Canadian stocks -- Canadian Utilities, Enbridge, Fortis and Goldcorp -- that did no worse than 12.7%

Misses: Four U.S. stocks - Handleman, Kinder Morgan, Rocky Mountain Chocolate Factory and UnitedHealth -- that together lost 11.9%.

Over all: Don't be put off by the lousy U.S. results -- this newsletter offers informed, easily understood commentary to regular investors.

Cost: $139.95 a year

Info: buildingwealth.ca or 1-888-287-8229