After the stock market closed on Nov. 30 with the Dow Jones industrial average at 3,683.95, the "late-entry model" of the Chartist Mutual Fund Timer, a fund newsletter, flashed a "buy" signal.
It was intended for subscribers who did not act on its "long-term buy signal" of Jan. 24, 1991, editor Dan Sullivan explained.
At about the same time that Sullivan advised his readers by mailgram or hotline to buy equity funds, Donoghue'$ Moneyletter's "Donoghue Signal" switched to "sell."
Designed by publisher William E. Donoghue for long-term investors "seeking higher returns at lower risk," the Signal told its followers to sell their Columbia Special, Oakmark, and Twentieth Century Ultra funds and move into money market funds.
If you had subscribed to both newsletters, you could have been confused. Whose advice should you have followed?
For that matter, if in November you also had received promotional literature for Donoghue's Moneytalk, an audio cassette service, you could have been further confused about which Donoghue advice to heed.
"I no longer recommend money funds as part of your investment portfolio," Donoghue said flatly in a "Dear Conservative Investor" form letter included in the mailing. Yet the Signal Portfolio Commentary in the January issue of Donoghue'$ Moneyletter insisted, "we expect to remain in money funds for the foreseeable future."
While such apparent conflicts in published investment advice from an individual adviser may be unusual -- Donoghue sold Moneyletter in 1989 to Britain's IBC but remained its publisher -- differences among various advisers are fairly common.
If you are thinking about subscribing to a newsletter for general ,, advice or specific recommendations on which funds to buy -- and when to buy or sell them -- how do you pick one?
Looking back two months later -- with Columbia Special and Ultra up over 10 percent but money market funds still only yielding around 2.7 percent -- you might conclude that Sullivan's newsletter is superior to Donoghue's.
But you really need to look at more than short-term records in choosing newsletters. You need to compare the total returns that you would have achieved over a longer term if you had acted on the advice of newsletters that recommend mutual funds -- and to size up the riskiness of their strategies.
The best way to begin is to study the January 31 issue of The Hulbert Financial Digest, an Alexandria, Va., newsletter (703-683-5905) that tracks fund letters' recommendations and calculates the pre-tax returns they should have produced for readers who acted promptly.
This issue lists 29 newsletters that recommend mutual funds exclusively and have at least one model fund portfolio with a 5-year record.
Of their total of 67 recommended model portfolios, only 14 (offered by nine letters and shown in the table) beat the 14.6 percent average annual return of the Wilshire 5000 Index for the last five years.
The top three -- the Select System of Jack Bowers' Fidelity Monitor, the Fidelity Select portfolio of Jim Schmidt's Timer Digest, and Peter Eliades' Stockmarket Cycles, with average annual returns for the period of over 25 percent -- invest only in Fidelity's Select Portfolios, which, being concentrated in companies in various economic sectors, can be more volatile than more diversified funds.
All three portfolios achieved their records by being invested only in one fund at a time, but Bowers decided in October to split his Select System into three, "to reduce downside risk."
Eliades' and Schmidt's portfolios were in American Gold or Precious Metals and Minerals for most of 1993, but they got out of these last month, Eliades taking refuge in cash because he's bearish and Schmidt moving into Medical Delivery.
Bowers, who avoids metals funds, made several switches last year. The most profitable: two stays in Telecommunications.
Other model portfolios -- such as Bowers' Growth, Sullivan's, and those of Eric Kobren's Fidelity Insight, Sheldon Jacobs' No-Load Fund Investor, and Bob Brinker's Marketimer -- are invested in three to eight diversified domestic and international equity funds.
There seems to be no widespread consensus on domestic fund selection.
Both Bowers and Jacobs were aided in 1993 by choosing Fidelity Emerging Markets, which had an 81.8 percent total return, while Jacobs and Brinker both owned T. Rowe Price Asia (78.8 percent).
Regarding their models as asset allocation portfolios, Jacobs and Kobren also include one or two bond funds and, unlike a number of rivals, don't practice market timing. Jacobs eliminated a cash position with his November 1990 issue -- not a bad call for a non-timer, considering that was about when the current bull market began.