Behavior and Performance of Investment Newsletter Analysts∗

This study analyzes the behavior and performance of 353 investment newsletters that make asset allocation recommendations during a period covering more than 21 years (June 1980 — November 2001). Newsletters change their asset mix between equity and cash using relatively simple rules that are strongly influenced by past market returns while macro-economic variables have only a very weak influence on their asset allocation decisions. On aggregate, newsletters do not outperform a passive investment strategy but there exist well-defined newsletter sub-groups (active newsletters, contrarian newsletters) that exhibit market-timing ability. Furthermore, when we examine the recommendations of individual newsletters at a higher frequency (daily as opposed to monthly), we find considerable evidence of timingability. There is also evidence of persistence in newsletters’ performance and a trading strategy that follows the average recommendations of newsletters that have performed well in the past 10 months is capable of outperforming the market on a risk-adjusted basis (the annual over-performance is 2.56%).