I ran across another cautionary tale highlighting the world of paid stock newsletters, where people pay hundreds of dollars for “exclusive” stock picks.
In this one, former professional baseball player Lenny Dykstra somehow become a highly-touted investment columnist in 2005 for TheStreet.com. Here’s a video of Jim Cramer heaping praise upon Dykstra, calling him “one of the great ones” and one of the 5 people in the world he’d take stock advice from.
Dykstra specialized in deep-in-the-money calls, and promised a 95% success rate. He sold over a million dollars in newsletter subscription fees at TheStreet.com. Then things started falling apart.
Sharp bloggers exposed this scam: he counted his winners, but endlessly rolled over his losers, so that he could keep claiming no losses. He didn’t even make the picks himself; they were supplied by another stock analyst. His actual return on money was probably negative. Dykstra was fired in April 2009 and is now in bankruptcy.
The most recent allegation is that Dykstra secretly took $250,000 in exchange for recommending a little-known stock to his newsletter subscribers and “access” to Jim Cramer, according to sources within the company.
As you can see, stock newsletters can be very murky. How can you verify their advertised performance is true? Are they being paid to tout the stocks you’re reading about? Mutual funds are highly regulated. Stock newsletters are not.
Most stock newsletters are more about marketing than actual results. For example, did Cramer really think Dykstra was a genius? Or did he simply see the opportunity to leverage an athlete’s well-known name to create a lot of easy buzz and thus money?
By Jonathan Ping | Investing | 6/29/10, 11:38pm