Published by Tim McKinlay on September 18, 2021
The idea of joining a stock advisory and using an expert investor’s “hot stock picks” to multiply your wealth is appealing, and there are benefits to these types of services.
The most obvious benefit is that you can leverage the stock market to grow your wealth without being an investment expert and without spending a fortune on a financial advisor.
And let’s face it…
Joining a half-decent advisory is probably better than guessing which stocks you think will rally based on pure speculation, especially since an estimated 90% of investors lose money.
That said, there are some “hidden truths” about the way stock advisories work that, at best, could be holding you back and, at worst, could end up losing you money.
What would I know?
Well, full disclosure, I am not an investment guru, nor do I claim to be.
However, I have carefully analyzed and reviewed over 100 investing and trading services on this site. And I’ve lost tens of thousands of dollars learning the hard way that not all stock advisories are as good as they appear. In fact, some are downright scams.
I’ve also been fortunate enough to find some really high-value, legitimate stock advisories that do work, that are ethically run, and that have helped me grow my wealth.
And all of this has given me a much better idea of what to look for when evaluating an investment advisory service than when I was first getting started.
And that’s why I decided to put this article together.
Because over the next few minutes, I’m going to share some truths with you that you probably won’t find anywhere else that I feel can help you avoid scams and find the “hidden gems” of the advisory world. And in my experience, the advisory you join can mean the difference between losing money and enjoying consistent, sleep-well-at-night gains you can be proud of.
6 “Hidden Truths” About Stock Advisories
If I had to summarize what I’m about to share with you into one point, it’d be to avoid anything that sounds too good to be true. That may sound like a cliche, and it is, but it’s also true.
This one thing could save you a lot of heartache.
With that said, there are six “hidden truths” about stock advisories I’ve come to learn that I wish I’d known before I started throwing money into the market. And over the next few minutes, I’m going to walk you through each of these to give you the best possible chance of success.
1. Never Let the Truth Get In the Way of a Good Story, Right?
Most popular investment “gurus” aren’t popular because they share stock recommendations that make their subscribers rich. Instead, it’s often because they’re great at telling stories.
Yes, I’m being serious.
It’s all about the marketing behind it. I’ve learned from my own experience of building a six-figure internet marketing business that storytelling can make or break your success.
And that’s exactly what the stock advisory world is all about – “gurus” telling compelling stories about the stocks they’ve uncovered to sell their subscription service.
Instead of telling you what the service is about and how it works, in plain English, most popular stock advisory services use “special presentations” designed to hype up the “latest hot stock” they’ve uncovered, which inevitably leads many people to buy.
There is often so much mystery surrounding this “little-known stock” that you “need to know” what they’re talking about for fear of missing out. And that’s the whole idea.
Nobody wants to miss out on the next big opportunity to make money!
And often, what I’ve found is that the most popular advisories make up names for the “opportunities” they present to create even more mystery about the stock they’re teasing.
So if you’ve ever come across an investing presentation and wondered what on earth it’s (actually) about, you’re not alone. The story they’re telling is designed to arouse curiosity.
One of the best and most recent examples of this I could give you is a presentation I reviewed about “G.T.E. Technology.” This presentation was shrouded in so much mystery that I almost had to include a glossary of terms to help explain what it was about (lol).
And there are many examples like this in the post archives of this site.
To be clear, I’m not saying there’s anything wrong with this; even the best and most ethical advisory services use some level of “hype” and “mystery” to get people interested.
And sometimes, depending on the service, they use the inverse approach by telling a story about a coming “market crash” that could cost you your life savings. In this case, instead of using FOMO to sell their service, they use fear of what might go wrong if you don’t join and get their advice.
Either way, the point I’m trying to make here is that a large part of why popular advisories are popular is because they are great at telling compelling stories.
And it’s easy to assume that because something is popular, it “must be good,” but I’ve learned the hard way that this is not always the case. Just because an advisory service is popular and is presented in an exciting way doesn’t always mean it’s worthwhile.
In hindsight, that sounds obvious. But it’s easy to get swept up in the hype, especially when you see all the testimonials and examples of winning recommendations in the presentation.
Which brings me to my next point…
2. Most “Gurus” Show You The “Highlights” (Not The Average Returns)
The second “hidden truth” I want to share with you is that many finance gurus I’ve come across tend to show you the winning stocks they’ve recommended while downplaying or even hiding the losers. Unfortunately, I have found this to be very common.
I can’t tell you the number of times I’ve seen a presentation that highlights all the winning bets the person behind it has recommended while saying nothing about the stocks they’ve suggested that have tanked.
And everyone gets it wrong from time to time. There’s not a single investor on the planet that has been in the game for long enough that hasn’t lost some money on some trades.
The only difference is, some “gurus” are willing to admit it, while others aren’t.
And in my experience, those who are most willing to “air their dirty laundry” are those with a good average track record. Even with the losing recommendations, they know that they have helped their subscribers generate a good return overall. So they are open about it.
Meanwhile, the not-so-legitimate gurus tend to show you the “highlights” of what they’ve recommended and hide the losing recommendations because overall, they have barely outperformed the S&P 500, or maybe they’ve even underperformed it.
So what I’ve found is that it’s essential to look for stock advisories that have an excellent average track record and avoid those that make wild claims about how well their recommendations have performed without showing you the average return of what they’ve recommended.
3. It’s $49 For a Reason – There Are Almost Always UPSELLS Coming
When most people subscribe to a “garden variety” stock advisory newsletter, they are entirely unaware that there’s a “hidden” reason why the service is priced so low.
What do I mean?
What I mean is that, in almost every case, when you join an advisory at a low price point (like $49, for example), there are numerous UPSELLS in store.
In other words, the company tries to sell you more expensive services after you join.
There’s nothing “wrong” with upsells per se, and this is certainly not limited to the investment newsletter business, but upselling is particularly widespread in this space.
Based on my experience and research, most lower-level services essentially act as a “stepping stone” towards getting you to buy progressively higher and higher-priced products.
Here’s what a typical sales funnel looks like in the stock advisory space:
- Email newsletter (free)
- Entry-level stock advisory service ($50 to $100 or less)
- Upsell 1: Premium service ($1,000 to $2,000 per year)
- Upsell 2: Elite service ($4,000 to $5,000 per year)
- Upsell 3: VIP Event ($5,000 to $10,000 or more)
This is more or less “standard practice” in the stock advisory space.
Of course, the prices may differ, as do the individual services, but the overall structure is the same. They get you in the door for a low price and “squeeze” as many people as possible into buying higher-priced products and services.
Why do they do this?
Because it works (extremely well).
Progressive upselling is a very effective and well-documented strategy.
It’s essentially based on the “foot-in-the-door technique,” which was a term coined by Johnathan Freedman and Scott Fraser of Stanford University in 1966.
The idea is to start by asking the customer to agree to a “small” request, like joining a free newsletter, for example, and build on that by asking the customer to agree to progressively larger requests, like buying an entry-level advisory, followed by premium services.
This is how most “sales funnels” in the advisory (and make money online) world work. I’ll leave it up for you to decide how ethical you think this practice is, but this is the reality.
When I first learned about all of this around six years ago, I thought it was a total scam. Like these people are just trying to suck every last dollar out of you. And maybe it is that simple. But these days, I feel I have a more balanced viewpoint on the matter.
I think upsells are okay, IF…
- The product or service is genuinely worth the money.
- You don’t need to buy it to achieve what the original product or service should have done.
- The marketing behind the upselling is ethical.
So I think it really depends on those three things as to how legitimate upselling is. But either way, right, wrong, or indifferent, most people who join popular stock advisories are blissfully unaware of any of this until AFTER they join and get barraged with emails about buying more stuff.
4. Playing “Follow The Leader” Can Be Very Risky
As I mentioned at the outset, joining a good stock advisory service can be a great idea, especially if you’re not a finance expert yourself and don’t want to pay a financial advisor.
However, there are risks in following someone’s investment advice.
And that’s true even if you join a reputable service.
Well, there are several reasons.
One reason is that even the best investment experts get it wrong from time to time. So if all you’re doing is blindly following someone’s advice without doing your due diligence because that’s the easy thing to do, then you could be setting yourself up for disaster.
When you’re in “follow the leader” mode, as I once was when I started joining these services, you’re essentially relying on someone else to dictate how you invest.
This requires an enormous amount of faith in someone you’ve never even met, and “faith” isn’t exactly a wise investment strategy, in my opinion.
This is why I always recommend properly educating yourself.
That way, you at least know the basics and can become a more self-sufficient trader or investor. It could also help you avoid getting scammed by charlatans that convince their followers to invest in things that (in reality) are pump and dump scams.
There are other potential issues, too.
For example, assuming the service is 100% legitimate, another way “following the leader” can become a liability is through something called “stock alerts.”
A stock alert is an email or text message sent out to subscribers of an advisory service that alerts you when to buy or sell shares. And in and of itself, I think stock alerts are great.
These “alerts” can help keep you up-to-date on what’s happening with the model portfolio and with any trade recommendations at any given time. So it can be a good way to stay informed.
However, at the same time, problems can arise when you become too reliant on these alerts.
For example, if a text message alert doesn’t get delivered to you because you have bad reception, if an email is delayed, or if you unexpectedly had to step away from your computer for a few hours… and an “alert” is sent during that time, you could end up losing money.
This isn’t likely to be a huge issue if you join a long-term “buy and hold” service, but on the other hand, if you’re a member of a faster-paced trading service, every second counts.
In that case, all it can take is for you to miss one single alert or act on it just a little too late, and you could end up taking a loss in your account that you weren’t expecting.
So my point in this section is that following an intelligent investment expert has its perks, but allowing yourself to become too reliant on someone else is never a good thing.
5. Beware of Shady Refund Policies (Common Red Flag)
One of the most common red flags I see among low-quality advisories is a shady refund policy. I’m not going to point any services out in particular. Still, I will outline what to look for so that you can check this yourself before signing up for a service you’re looking at.
What do I mean by a “shady” refund policy?
The most ethical, legitimate services tend to give you at least two-to-four weeks to try the service, and if you’re not happy, you can get your money back. Some offer you more or less time, but the idea is that you can get your money back without a lot of fuss if you’re not satisfied.
On the other hand, what I tend to see among low-quality advisories is that they either don’t offer a refund at all, they offer you a “refund credit” if you’re not satisfied, or they put some hidden clause in the fine print that more or less means you can’t get your money back.
In case you’re unfamiliar with a “refund credit,” this is where the company allows you to cancel your existing service and join another one they run. Which, to me, is not a valid refund. It’s a way for the company to pretend like they’re giving you a refund when in reality, they still keep your money regardless of how happy you are with their services.
Either way, I am personally wary of any service that doesn’t back up their service with a refund because it shows they might not be confident people will want to stay after joining.
The only exception to this, at least in my mind, is when a company allows you to try the service first without charging you anything. In that case, I understand not having a refund policy because you can “try before you buy.”
So there are some nuances to this, but generally speaking, what sort of refund policy the advisory has is something to look out for as it can be a red flag.
6. Ask Yourself, What Are The Incentives?
The final “hidden truth” I want to bring to your attention relates to incentives—specifically, the underlying incentives of the person making the recommendations.
Because if you can understand a person’s incentive structure, you will have a much better idea of what is motivating them and what might be behind their recommendation. Which in turn can impact the outcome you get as a member of their service.
As Charlie Munger famously said, “show me the incentive, and I’ll show you the outcome.”
In the advisory space, what I’ve found is that the “incentive” for many gurus is often to promote the “latest hot stock” in whatever sector they specialize in.
This may sound like a good thing, but in my opinion, this incentive structure really skews some of their recommendations and doesn’t always provide the best outcome for subscribers.
Why? Because month after month, the most popular gurus are striving to deliver the latest, most “cutting-edge” stock picks that aren’t being discussed anywhere else to stay relevant and outshine their competitors.
Meanwhile, the best idea might simply be to recommend their subscribers do nothing for that month, buy more shares of something they’ve already recommended, or recommending buying something that may be considered “boring.”
Here’s an example to illustrate what I’m saying…
Just imagine for a moment that we are entering the beginning of a commodities boom and that an intelligent investor has done all the research and come to the conclusion that the best opportunity he can see is to invest in bland, uninteresting wheat futures.
Now let’s pretend that this investing expert, let’s call him Paul, sells an investment advisory and that this is how he makes the majority of his money.
Paul knows that buying wheat futures is probably the best idea for his subscribers, but he also knows that recommending wheat futures won’t help him sell as many subscriptions as he’d hoped to sell that month. Especially since his competitors are talking about more exciting plays, like making a 100X return off of a “little-known” commodity stock in a short period of time.
So, he decides to recommend a small-cap commodity stock instead. One he thinks has potential, and that fits an exciting narrative he can use to sell more subscriptions than his competitors. Even though, deep down, he knows he should recommend his subscribers buy wheat.
And this, ladies and gents, is THE “hidden truth” about stock advisories.
What opportunities a “finance guru” recommends is not always what’s best for subscribers. There are often “hidden” incentives driving the recommendations.
Okay… but aren’t all finance gurus incentivized to help their subscribers make incredible gains, since the better the returns they can boast, the more likely people are to join?
Yes, but that’s assuming the service is transparent enough to show you the average gains and not just the “highlight reel” of what’s been recommended. Because if not, the person running it can recommend whatever they want and bury the losing trades while bragging about the winners.
So my point here is that a person’s incentives will often dictate their behavior, which in turn can impact those who listen to them.
And to be clear, this isn’t necessarily a bad thing. In fact, it can actually be a good thing if the incentives are aligned in such a way that benefits you.
For example, ethical finance gurus are incentivized to genuinely help their subscribers because they want you to stay a member with them for as long as possible and spread the word to as many people you know as possible in the hopes of growing their business.
So, in this case, their “greedy” incentives are working in your favor.
And because they are open and transparent about the average return of their recommendations, the ethical gurus are incentivized to recommend stocks that perform long-term.
So I guess the key is to understand the incentives, then consider whether the person has your best interests at heart or if they’re just trying to make a quick buck at your expense.
How Do You Choose The Best Stock Advisory Service?
Up to this point, we’ve discussed some of the main things to watch out for when evaluating a stock advisory service. And if all you do is keep these six main points in mind, your chances of joining a higher quality service that helps you reach your investing goals will be much higher.
But how do you choose the best of the bunch?
Well, I’m not sure there is a “best” service when it comes to investing or trading; I think it ultimately depends on your circumstances and goals as to what will work best for you.
That said, some advisories are better than others, and in my experience, the best services tend to share the following traits.
- Proven track record: First and foremost, you ideally want to join a service with a proven track record of success. And I’m not talking about services that “cherry pick” a bunch of winning recommendations, the best advisories are 100% transparent about their track record. The people behind it know their service delivers, so they’re not afraid to share their entire track record with all who join, not just the highlights, but the average gains over time.
- Ethical marketing: One of the main things I look for when evaluating an advisory is the marketing behind it. The best services tend to avoid overhyping everything and instead, explain what the service is about in plain english so you clearly know what to expect. If anything, the most ethical advisories tend to underpromise and overdeliver and it really stands out.
- Encourage you to learn: Another thing high-quality advisories do is encourage you to learn the art of investing through things like step-by-step training, reports, webinars, and helpful videos. That way, instead of just following someone, you learn how to become a successful investor.
- Proper incentives: Low quality advisories are incentivized to use every trick in the book to make a quick buck off of people. Whereas legitimate services are incentivized to deliver genuine value to their subscribers since they want them to stick around and spread the word. Also, since they stand behind their service, the best advisories have a simple, transparent refund policy.
Of course, there are many things to consider when choosing the right advisory, but these are the main things I look for. And there are many great services that measure up to this.
That said, after years of trying and reviewing different services, there’s really only one advisory I’ve joined that really stands out as the best, and that’s Motley Fool Stock Advisor.
After joining Stock Advisor, I was amazed at how different it was compared to 99% of the other services out there. And most importantly, their recommendations work.
As a subscriber, you get access to their entire track record, all the way back to when the service began in 2002. And as of writing, Stock Advisor has outperformed the S&P 500 by 4 to 1, and their average recommendation has returned over 624%, which is almost unheard of in this space.
It’s about more than just following a bunch of stock picks, though; you also get detailed insights and resources to help you become a better investor.
Thanks to Stock Advisor, I’ve learned how to grow my wealth without having a degree in finance or spending hours glued to my screen each month. And that’s why I recommend it.
Now, full disclosure, I am an affiliate of Motley Fool. So I will earn a commission if you decide to give it a try through the links on this page, which helps support my blog.
This doesn’t impact the price you pay if you decide to join though, it comes out of the company’s pocket. And either way, the reason I wholeheartedly recommend Stock Advisor is because it’s an excellent service. So out of everything I could recommend, this is my top choice.
As mentioned, however, there are some other great services out there.
For example, Lyn Alden’s Premium Stock Research Service is a very high-quality advisory, and it’s all about long-term value investing. Lyn is a genius and, even if you don’t join her service, I highly recommend checking out her free content as she shares a lot of useful insights.
Also, if you’re looking for something faster-paced, Chris Vermeulen’s The Technical Traders is a great trading service based on technical analysis, and Chris is someone I’ve learned a lot from.
Aside from these, you can also check out the full archive of investment-related reviews if you want to get my opinion on some of the latest programs I come across in this space.
In this article, we’ve covered six “hidden truths” about popular investment advisories, I’ve shown you what I look for when choosing an advisory, and I’ve mentioned a few specific services that you may find worthwhile depending on what you want to achieve.
At the end of the day, though, how worthwhile an advisory is, depends on your own preferences and situation, so you might like completely different advisories to me.
And keep in mind that, regardless of which service you join, there are no guarantees when it comes to investing. So even though something may have performed well in the past, there are no guarantees it will continue to do so. So always do your own research before deciding anything.
Either way, thanks for reading, I hope you found what I shared helpful and that you now have a better idea of what to look for when deciding which advisory is suitable for you.