Sunday, January 08, 2006

Investment Newsletter Review: Prudent Speculator

My father has received the Prudent Speculator investment newsletter for over 10 years. In that time, I have peaked over his shoulder and taken many of Prudent's picks and purchased stock. Based on my first investment newsletter review, I'll discuss Prudent in terms of the Early Riser Rules.

A one-year subscription costs $295 and has a 100% money-back guarantee. Additionally, the employees of the company 'eat their own cooking' and invest in the newsletter's related mutual fund (as do I). Therefore, Prudent passes Rule 1 & 2...

Newsletter Rule #1: Low risk purchase
Newsletter Rule #2: Publisher must stand behind the quality of the newsletter

According to Hulbert, The Prudent Speculator is the #1 ranked investment newsletter for 10, 15 and 25 year returns. It's important to note that this ranking does not factor-in risk of the suggested investments, rather it's just the total return. Once risk is taken into account, Prudent drops to just being in the top 5... still, not too bad.

Their investment philosophy is basic value investing (looking for undervalued companies) coupled with an almost extreme buy & hold strategy. The now-deceased founder, Al Frank, calls this investment patience 'benevolent neglect'. In fact, they recently examined how their returns would have looked with 10, 15 and 25% trailing stops. They found that their returns would have been lower with the stops versus with their benign neglect.

There's nothing special about value investing. Prudent's devotion and patience with their value picks is, however, unique enough to generate leading returns. In my book, they satisfy Rule #3...

Newsletter Rule #3: Author must have unique knowledge or skill that cannot easily found in the market.

Every month the newsletter contains a 'Pick of the Month' article, a selection of 10 'Portfolio Builder' stocks (a list of buys that follows some theme) and a listing of all currently recommended stocks. This listing is my favorite destination. It lists over 100 stocks that meet their stock screening criteria and that are trading below the newsletter's 'buy-limit'. Every other month, I find myself making a few trades based on this page.

The newsletter also has a web site that has 'Flash Updates' every few days and a listing of the buy and sell limits for all stock that have been recommended in the past and are trading below their sell limit (it's a really big list). The site and the newsletter are timely and well designed, satisfying rule #4...

Newsletter rule #4: Newsletter must provide timely and actionable information

For the last 4 years, I've been buying (and selling) their stock picks. I've had several home-runs (stock & buy-price):
  • MO at $25
  • VCLK at $2 (sold @10)
  • UST @ $30
  • and many (15+) others

and a few strike-outs including zoom @ $9 (I sold at $5). There have also been a few instances where I prematurely sold, Prudent held and I missed-out of big upside. The bottom line is that their advice has been very profitable for me and I'll continue to take their picks.

Unfortunately, it has not been profitable for my dad. His investment style is much more aggressive than mine. Where I tend to make more frequent, smaller buys, he tends to make a few, large trades and holds them (well actually... he sells his winners too soon and holds his losers indefinitely). His big bets have been on the wrong stocks and he cannot stand to recognize his losses.

Newsletter Rule #5: The newsletter must produce uniquely good results for me.

This is the most important rule and in the case of The Prudent Speculator and me - the answer is an unqualified yes. For my dad, the answer is no. Your mileage may vary.


At 8:03 AM, Anonymous Anonymous said...

I have used TPS for 2 years. I am 62 and investing our retirement money. I have been in the market for about 20 years. I did well the first year. This last year has been more difficult.

I had been with Ken Fisher for a few years. It was not good, but maybe too short of a time frame. I like TPS because I know what pool of stocks I am choosing from and they are tracked. With Ken it was blind.

I am hoping to see my choices go up soon.

At 5:17 PM, Anonymous Anonymous said...

I'm wondering who are the top 4 if TPS is 5th?

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At 8:40 PM, Anonymous PENNY STOCK INVESTMENTS said...

Excellent blog great newsletter reviews


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