I have been blogging about stocks and the economy since early 2007. During these past 2 1/2 years, the markets haven't been exactly conducive to marketing services to retail investors. Lately, though, after the rally of a life-time, I have been inundated with all sorts of offers to help me become a better stock picker. These claims are almost always shallow and baseless, but sometimes they border on criminal. I hereby vow to expose marketing claims that are disingenuous at best. If any readers feel like emailing me solicitations they receive, I am happy to share my thoughts publicly.
Today, I received one from TheStreet.com (TSCM) for the second or third time. Here is a link to what I received. I am not sure about copyright laws, so I won't post directly. Here, though, is my summary of the solicitation.
- Ron Insana runs the service
- His "portfolio is up 46.18% YTD"
- Jim Cramer's smiling face and "Booyah" signature endorse the product
Now, I have nothing against Mr. Insana or Mr. Cramer, but I do have something against misleading advertisements. If you read the "fine print", you learn that the service actually began March 13th. To cite a "YTD" return is highly unethical given that the portfolio didn't start until after the market bottomed. The ad then cites a return of the S&P 500 of just 14.14% during that same time-frame. Of course, the market is up a lot more than 14% since mid-March. While I can't be sure of what they are trying to convey, my initial hypothesis was that their "average return" has "beaten the market", with a 46% average pick return and the market rising 14% over the exact same time-frame per pick. This certainly isn't clear to me, but I couldn't imagine how else they are coming up with that number. Even trying to say what the average stock in the S&P 500 has done over the past 5 1/2 months would yield a higher answer than "14%". The S&P 500 has increased in price by 36% since 3/13, but the median stock return or the average return has been substantially higher. My second hypothesis, and the one that is likely correct, is that they cited the YTD return of the S&P 500 (despite the fact that the service began 3/13). The small footnote clearly stated:
For the period from the inception of the Market Movers portfolio on 3/13/09 through 8/28/09, the portfolio's total average return was 46.18%. For the same period, the S&P 500 had a 14.14% total average return.
The S&P 500 has a price return of 13.91% YTD through 8/28, but the market was down slightly on the 28th. Yep, through 8/27 (not 8/28), it had a price return of.... 14.14% (source: S&P). So, the geniuses in marketing apparently gave not only the wrong description (wrong date), but also the wrong type of number (they should have included dividends - total return). I can't be sure if this is how they came up with the "14.14%" - hard to believe, but my theory may be correct.
So, there are at least two very misleading aspects to this solicitation. First, Mr. Cramer portrays Mr. Insana's return as year-to-date when it is clearly over a shorter time-frame. Second, he calls this 46% return a "portfolio return" (which it may not actually be) that beat the market's return of 14% (which isn't correct unless my hypothesis described above regarding methodology is accurate). If the portfolio is actually up 46%, it is up more than the market during that same time-frame, but not 32% higher. If the average pick is up 46%, then they aren't being clear. If they really meant to compare the peformances despite it being apples (since inception) and oranges (YTD), that is illegal. It is extremely sloppy at best and devious if intentional.
So, my advice to investors is to save the $700 that they are asking you to spend until Mr. Insana can better describe not only his performance, but his investment philosophy as well. How would these strategies have worked in the prior six months? The ad states that he has gone to 100% cash. Is that what he is advising? If the market keeps rallying while he doesn't have any picks, will that be included in the way they describe the service? TheStreet.com (TSCM) has come back to life twice now. I don't believe that misleading potential clients is a strong foundation for the third resurrection, and I urge Mr. Insana and Mr. Cramer to review this marketing strategy. Neither of them needs to tarnish his own reputation by engaging in this type of hyperbole.
My advice to newsletter writers who advertise is to be honest. I don't mind playing the role of consumer advocate, and be warned that I am on the lookout for other examples of misleading investment performance claims, even if they are within the bounds of the law.
Disclosure: None
