Dear Daily Crux reader, –––––––––––––––––––––––––––––––––––––––––– The Daily Crux: Brian... we're here today to answer one of the most frequent questions asked of the investment advisory business. You claim to have some insight on it.
This week's interview addresses one of the biggest concerns of new investment newsletter readers... and a question even longtime readers have likely wondered from time to time.
To answer this question, we sat down with Brian Hunt, editor in chief of Stansberry & Associates Investment Research. As someone who writes and edits investment advisories – and who is a confessed "newsletter junkie" – he's exceptionally qualified to answer this question.
Whether you've been reading investment advisories for decades or are just learning about the business, this is an interview you won't want to miss.
Regards,
Justin Brill
Managing Editor, The Daily Crux
www.thedailycrux.com
The Daily Crux Sunday Interview
If you're so smart,
why are you writing a newsletter?
The question is... "If you're so smart about the financial markets, why are you writing a newsletter?"
Brian Hunt: Stansberry & Associates is one of the world's biggest publishers of investment advisories. So yes, we do get that question a lot. One of my in-laws actually asked me that last month. I think he believes the whole industry is a big scam... But he was too polite to say it.
Many people just can't believe a really smart or wealthy person would want to write an investment advisory.
They think, "Well if this guy is so smart about stocks, why isn't he just trading those ideas and making millions in the market on his own? Why go through the trouble of writing all that stuff?"
I can relate to folks who ask that question. I started reading investment newsletters when I was 20 years old. And that was one of the first reactions I had to the industry. I'd wonder why somebody who had lots of money and knowledge would write a newsletter. Why not just invest and trade, get richer, and keep your ideas to yourself?
Now... after working in the advisory industry for eight years, and meeting or working with most of the "gurus" our readers hear about so often, I have some insight on why people do it. And I have some warnings about the industry as well.
Crux: Let's start with the reasons first.
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Hunt: A big one for me – and lots of my friends in the business – is that you have a tremendous amount of freedom and independence in the advisory business. It's a wonderfully portable business. With the Internet, you can work pretty much anywhere you please. You can write commentary on your back porch, on the beach, in an office, or in a hotel room.
Many other investment and financial jobs require you to work in one place all the time. For example, back in the day, floor traders had to live in a financial capital like Chicago or New York. A tax specialist may have to work all the time in one small town.
What many advisory writers do is simply pick a spot where they really want to live and go live there. I chose a beautiful little beach town in Florida... emphasis on "chose." I live near one of my best friends, Tom Dyson, who is also a publisher and advisory writer. He chose to live there, too.
One of my other best friends, who also writes an advisory, doesn't really "live" anywhere. He's on the road, traveling a lot. That's what he loves to do. That is pretty cool in my opinion. That's freedom.
And believe me, I know what the other side of the spectrum is like. I grew up on a pig farm. You can't pick up and move a pig farm. And you don't want to travel around with your pigs.
Another piece of freedom is that a successful advisory writer can say whatever he wants. He's not censored. Independent people love that.
Most – but not all – newsletter franchises make money by selling subscriptions... and that's it. An overwhelmingly large portion of their revenue comes from people buying subscriptions. The publishers don't advertise mutual funds or brokers in their pages. They don't collect trading commissions or banking fees.
They let their analysts voice their opinions on the markets, whatever those opinions may be. If lots of readers find value in those opinions, or simply enjoy reading the commentary, the publisher has a viable business on his hands. If nobody likes or buys the letter, the publisher has an expensive hobby on his hands.
It's often that cut and dry in the newsletter business. You write what you want, and if people want to read it, you've got a career. If they don't want to read it, you're out of luck.
On the other hand, lots of other publications and financial businesses have advertisers to consider. They have banking clients to retain and impress. They need to attract brokerage business. These factors often force the editors and analysts to toe the company line.
For example, maybe a person with a smart financial mind thinks the average mutual fund is a terrible place to park money. Maybe he knows most mutual funds don't even beat market averages. Maybe he knows they often charge investors absurdly high fees while producing poor results. If he works for a publication that receives ad revenue from mutual funds, his publisher is going to tell him to keep his mouth shut. Or if he works for a fund company that sells mutual fund services, he's going to get fired, or quit, because of his beliefs.
Freedom to live wherever you please, and freedom to say and do whatever you please, is a big allure for some people.
On the other hand, some people are perfectly happy working for big, traditional financial firms. In these places, when your boss wants your opinion, he'll give it to you... And if you think a particular product or service your company is selling isn't worth a crap, that's tough. You do what you're told, or you're canned.
Often, working for a big financial firm in New York is more lucrative for analysts and traders than scribbling an advisory on the beach, but some people value the freedom and independence more than the huge money, which is often made by doing things that aren't in the best interests of clients... like when Wall Street analysts were urging people to buy Internet stocks in 1999, while privately referring to those stocks as "pieces of shit." Or when the big Wall Street firms pushed risky mortgage investments onto their clients... when they knew they were ticking time bombs.
Don't get me wrong... some people in the investment advisory business have a history of selling advice that is popular, but awful, just to make a buck. There are some questionable operators in this industry... people who should be ignored forever.
One of my biggest warnings to advisory readers is to make sure the person you are reading isn't being paid by the companies he is writing about. They are obligated by law to mention if they are in their publication. If you're reading someone who was paid off, throw their letter in the garbage.
But there are lots of honest firms in our business who simply want to produce and sell great, independent commentary and recommendations. That's where the great, honest people go to work. And they often find that writing an advisory is a way to make a fantastic living, by helping more people than you ever could in conventional financial jobs.
Crux: How can you help more people by writing about investments?
Hunt: Steve Sjuggerud's story is a good example of this.
Steve is the smartest person I've ever met. He's done most every job in the investment business... from being a broker, to working for a hedge fund, to running a mutual fund. He could have chosen any career path he wanted and been world class at it.
He chose to write an advisory for several reasons... but one of the biggest is that he truly wants to help as many people as he can. He could be a super-successful broker or money manager, and help 100 or 1,000 people... But with his True Wealth andDailyWealth advisories, he's able to reach out to hundreds of thousands of people.
He's able to write whatever he thinks is the right thing to do. He doesn't toe a company line. He doesn't have to sit in meetings with clients and bosses. He's able to get great financial advice out to a huge number of people.
Steve also loves to teach. He's taught an incredible number of people over the years how to be more successful investors. He has changed many, many lives, for the better. He sure has taught me a lot. Most financial jobs don't allow you to do much teaching. It's worth noting that Steve also handpicked where he lives. He loves the freedom as well.
Of course, not every publisher or advisor is as big into helping others as Steve is. Some people in the business just want to make a buck. And they don't give a hoot about helping others. But there are people in this business who genuinely care about helping others become wealthy and financially independent.
Crux: It's also worth pointing out that some people actually like to write about investments and economics.
Hunt: Absolutely. Writing is a painful activity for a lot of people. They see writing anything longer than a text message as a huge hassle.
Many newsletter writers love to write. They love to put their thoughts down on paper or a computer page. They work extremely hard at becoming clear writers. Jeff Clark, who is one of the best traders I've ever met, loves the challenge of writing out his trading ideas.
Doing this forces you to really think out your idea. It forces you to understand what you're writing about. Some people might see the act of writing pages and pages of investment analysis as a headache. But to a lot of advisory writers, it is a pleasure.
There is some ego to this as well. Many people like to go "on record" with their thoughts and forecasts. This is why a lot of books get written.
Crux: Finally, let's address the most pointed version of the question... It goes, "If you're so smart about the markets, why aren't you rich?"
Hunt: My boss Porter Stansberry provided the shortest, best answer to this question once. I think a reader asked it about some of the analysts that work for S&A. Porter replied with, "Who says they're not rich?"
It would be rude to get into names and details. But I can tell you that the best advisory writers are rich. They are great investors. They are great traders. And they do eat their own cooking.
Their publisher may prohibit them from owning shares of a company they write about, but in today's world of ETFs, bonds, preferred stocks, options, futures, large-caps, small-caps, and mid-caps, there are a thousand different ways to trade an idea.
You can make money by both investing in your idea and selling your idea. Selling great ideas can be a high-margin business, because the cost of producing an advisory is low, compared to... producing a car or a refrigerator.
Now you can't call up a publisher or an analyst and ask to see his bank account, but you can get an idea of his financial situation by the way he writes.
If he only focuses on the rewards of an investment, and doesn't address the risks... or if he buys what is popular... or if he doesn't address or analyze the best way to sell a position, chances are good he is not rich. Chances are good he is not a great investor or trader.
Crux: Great points. Any final thoughts?
Hunt: I should just emphasize that the advisory industry is like any other. You've got some brilliant, standup people working in it, and you've got some schmucks and bad characters. I hope this interview will help readers separate the good from the bad... and understand why the good ones absolutely love what they do.
Crux: Sounds good. Thank you, Brian.
Hunt: My pleasure.
Editor's Note: With all of the free-thinking, independent folks writing advisories, the industry has no shortage of unusual ideas on wealth and retirement. For example, conventional wisdom says there's no way to retire on just $10,000 in savings. But a Maryland doctor says it's not only possible… but if you meet two simple requirements, $10,000 is all you need to live a rich retirement. You can see the full details of his unconventional plan by clicking here.
Sunday, 16 October 2011
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