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Friday File: Bouncing Keys and a “Too Good to be True” Reminder

Checking in on a couple new buys, including some REIT talk -- notes on IIPR, KEYS, IIPR, NOK & ERIC, OKTA, SNH and more...

Sometimes I get so deep in the weeds in struggling through the absurd promises and promotions from investment newsletters that I forget to mention the one key common-sense tool that we all have at our disposal: If it sounds way to good to be true, it’s not true.

Sadly, in the world of investing we find that a huge number of folks are just not informed or educated enough to know what “too good to be true” looks like — if you don’t know anything about investing and you read a newsletter that promises it can double your money every couple years, does that sound reasonable? It’s not, of course, that’s a blistering and unsustainable return, based probably on fudged numbers or backtests or just annualizing out a few of a newsletters best picks, but that’s not always obvious to everyone.

So I commend to you an article on the AAII website from Mark Hulbert, who pioneered the objective analysis of newsletters for his Hulbert Financial Digest in the pre-internet era (that publication was later bought by Marketwatch, then put to pasture a few years ago). Hulbert used to subscribe to and track the specific portfolio performance of several hundred newsletters, which was a great service and provided some good context to the claims of extraordinary returns, but he never had the chance to collect much data on the more recent newsletters that have provided us so much hyped-up marketing material over the past decade or so. He does not track all the hyped-up newsletters of today, but the potential performance of stock tipsters hasn’t changed much… here’s the lead to his article:

“Most individuals wouldn’t give the time of day to a used car salesman who claimed that an old car had only been driven to church on Sundays. Yet many investors not only gave the time of day, but actually paid good money to an investment newsletter that claimed that in 13 years’ time it had turned $10,000 into more than $40 million.”

And the idea of a “maximum realistic performance” is, I think, a good reminder for those who might not have the experience to put those claims into context:

“One of the most important lessons to learn concerns the highest return you can realistically expect to earn over long periods. I believe that this practical maximum is around 20% to 25% annualized, and even that ...

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