stock portfolio vs. idea generation
When we started our investment newsletter business, we were immediately faced with a quandary. We wanted to be pure. We wanted to avoid salesy, spammy email campaigns. We wanted to be the go-to people for small cap, technology stocks.
In short, we wanted to be about ideas.
So, in crafting our newsletter content plan, we considered just publishing our best ideas, month in and month out. What we found is that there are two different types of subscribers to investment newsletters.
Two types of investment newsletter subscriber
The Good Soldier: This subscriber happily subscribes to just one or a couple of financial newsletters and frequently does exactly what the newsletter tells him/her to do. He’s buying on the buy recommendations and selling on the calls to sell. He’s following the model. He doesn’t really care that much about the financial modeling behind the stock picks but he does require an investment thesis to feel comfortable with his trading. This investor will consider purchasing the newsletter based on the stated performance of the model portfolio. He needs a portfolio to be able to monitor how well the newsletter performs in order to implement the model himself.
Though there aren’t any industry statistics that I’ve come across, but I’d venture to say that this Good Soldier subscriber is the most frequent subscriber to investment newsletters. If you go this route of trying to attract a typical retail investor, the price point you decide to charge for the newsletter should reflect this consumer ($79-$199/year).
Pros:
- certain subscribers look for the hot hands and if your portfolio is doing well, that’s good for business.
- by including a portfolio, you can attract every type of subscriber
Cons:
- If you include a portfolio, you live and die by the sword. No one really cares if you’re up more than the market when everything is down big time like in 2008.
- If you only include a portfolio and don’t back up the picks with some real analysis, you risk losing some types of subscribers (see below)
Idea Searcher: A more discerning consumer of investment newsletters, the idea searcher subscribes to multiple newsletters in an attempt to cull the best ideas from all of them. He is frequently a professional investor and is willing to pay a premium price for a newsletter, given the fact that he’s likely trading larger sums of money. Instead of a portfolio, he’s looking for well-reasoned trades. For the Idea Searcher, the newsletter does a lot of the stock screening work, getting rid of the clutter and presents a pre-packaged idea. The idea searcher will then conduct his own investment research work on the ideas presented by the newsletter. So, in this model, writing and explanatory style are extremely important.
If you want to see a good example of a newsletter focused on idea-generation, check out Whitney Tilson’s Value Investor Insight. Last I checked it was all about ideas and utilized interviews with investment gurus as its foundation of the monthly content and stock picks.
So, depending on who you’re trying to reach, it makes sense to craft your newsletter accordingly.
We took a different route. Given the fact that we went with a niche letter instead of a broader market newsletter (see my article on how to pick a theme), we wanted to be both about idea generation and portfolio managers. We wanted to sell a newsletter to both the Good Soldier and the Idea Searcher and we believed we could given our niche approach.
We broke our newsletter out into different sections
- Stock of the Month: this pick, written at length and with real research behind it, went into our portfolio and we managed our portfolio for performance by buying and adding stocks to it on a monthly basis and with updates throughout the month if we thought it prudent.
- Interview with other fund managers: this is a fantabulous idea for a variety of reasons. The picks are someone else’s — another manager/analyst has done the research work and you’re just writing it up. It’s good marketing for their firm so, they’re pretty happy to give it. Plus, if the stock tanks, subscribers are more giving in their critique given the fact that it wasn’t actually a real pick. This is pure idea generation.
- Industry analysis: Focus some research on making subscribers smarter in an industry or market as a whole. It may not be tradable information but helps them become better investors. This serves the Idea Searcher a lot more than it does the Good Soldier.
- Alternative picks: While not written up as in depth as the Stock of the Month, these are some picks you can give with price targets to give Good Soldiers more to sink their teeth into. It keeps readers engaged and provides for more activity in and out of the portfolio.
As in any business, it’s particularly important to know who your target is and then craft the business around reaching this target. The financial newsletter business is just the same. Including a portfolio is risky — performance becomes more important than if you just stick to ideas, but I think everyone, including those looking for ideas, needs some type of portfolio tool just to gauge how good a newsletter they’re looking at.
Don’t forget to check out our page of all the newsletter resources you’ll need to get your newsletter off the ground and making some dough and subscribe to receive free, value-added updates from us.
