PREFACE TO THE 2009 EDITION: CONFESSIONS OF A NEWSLETTER MAN

We begin with a question: Was ever there a fairer métier than ours?

The poor carpenter risks cutting his fingers or banging his knee. The used car salesman's hearing goes bad as soon as he takes up his job: “No, I don't hear any rattle,” says he. The foot‐soldier gets sent to a Godforsaken hole like Afghanistan, where the women are covered up and the liquor stashed away.

But in our trade as newsletter publishers, hardly a day passes without a good laugh. Our only occupational hazard is a rupture of the midriff.

Most people, after all, read the news pages for information. They lack the proper training and perspective to fully enjoy them. The consequence is that they are always in danger of taking the humbug seriously, or worse, finding the people who populate the headlines important.

If you really want to appreciate the media you have to get close enough to see how it works—like a prairie dog peering into a hay bailer—but not so close that you get caught up in it yourself. The investment newsletter business is perfect; it is part of the media, but it wouldn't be mistaken for a reputable part.

More than 30 years ago, we began our career publishing newsletters. Those were the days! They were even more fun than today. Years of television, heavy‐handed regulation, and waiting in line for airport security have taken much of the lightheartedness out of American life. In its place, a kind of earnest timidity has settled over the 50 states. Everything is forbidden, or else it is compulsory—especially in the financial markets. You can barely talk about an honest investment without some ambitious prosecutor wanting to make a federal case out of it.

But back in the 1970s, the folks you met in the newsletter trade were even wilder and more disreputable than those who are in it today. At one investment conference, we remember an investment advisor from East Germany. He had escaped the Soviets' grip by stealing a small plane and flying to the west. This alone made him a bit of a hero back in the 1970s. But his talk to investors endeared him further. He gave the following discourse:

“Take a look a zis chart,” he would begin, pointing to the bottom of what appeared to be a wave pattern. “Investing is reeelly very simple. You just buy at zee bottom. Heere! Zen, ven ze stock goes up, vat do ve do? Ve sell. Heere! [Pointing to the top of the wave pattern.] It is reeelly verrry simple.”

“Well, what if the stock doesn't go up,” asked an investor, fresh off the Great Plains and not prepared for patterns or people that weren't perfectly straight.

“Ya … ve just keep our eyes on ze chart. If it doesn't go up, ve don't buy it.”

We don't recall the man's name. It was something like Dr. Friederich Hasselbauer. We were always a bit suspicious of financial advisors who used the “Dr.” title, though many did. Especially when they spoke with thick German accents. We imagined that they had been conducting experiments on Jews before they entered the financial markets.

And then there was the Quack man. His name was “Red Robin.” As near as we could figure, he liked ducks. So he called his financial analysis “The Quack Report.” He had once made his money paving airport runways. Then, in his fifties or sixties, he decided to devote himself to financial analysis and to save the world from a small group of criminal conspirators known as the Bilderburgers, who were in cahoots with the English government. Once, flying on the Concorde across the Atlantic, Ol' “Red” saw the U.K. Chancellor of the Exchequer, it must have been Lord Barber, on the same flight. He told us that he decided to confront his lordship right then and there, when he had the chance.

“I just went up to him and I said, ‘I’m on to you … ol' buddy … '”

It must have been quite a scene. Red Robin was a funny‐looking fellow with a paunchy stomach who always dressed in orange coveralls, which made him look a little like a red‐breasted sapsucker. Why he wore orange overalls, we don't know; perhaps they were a holdover from his days working on airport runways when he didn't want the cement trucks to run him down.

Red also had funny ideas about publishing investment advice. He offered readers a Lifetime Guarantee—they could have their money back anytime. But then, he added a caveat: “My life, not yours.” As it turned out, the guarantee was less valuable than readers imagined—or Red himself had hoped. He was gunned down on a beach in Costa Rica, we were told.

But that was the strange milieu in which we decided to make our career. What was delightful about it were the nuts and kooks, the charlatans and dreamers, the brazen hucksters and earnest geniuses who made up the industry. Here were thinkers whose thoughts were untainted by any trace of advanced doctrinaire theory, let alone rudimentary training of any sort. Here were mountebanks and scalawags galore … along with a few saints … dispensing market wisdom, stock recommendations, and macro‐analysis so far reaching you needed a Hubble telescope to see where it came from.

And here, too, were the sort of men whom rich widows were warned about. And the sort of theorists who made you wonder about the limits of human reason itself.

Our friend, Gary North, somewhat of a legend in the business, began studying the possible consequences of the Y2K computer problem in the late 1990s. The more closely he looked, the more alarmed he became. He began writing about the subject, and the more he explored it … the more he thought about it … the more convinced he became that it would lead to a complete meltdown of modern society. He looked and he saw commerce coming to a stop. He saw trains that couldn't run without electronic instruction. He saw cash machines frozen up. He saw power plants idled by their computer brains. And what would happen to all that electronic information—bank accounts, trading records, inventories—on which the whole financial world depended? He saw millions of people with no money … and then no food. He saw riots in the streets … and worse.

Then, he looked around and saw that he and his family were as exposed to the menace as everyone else. He decided to take precautions, moving his family to an isolated rural area where they would be safe from the apocalypse he saw coming.

Maybe he would be wrong, he reasoned. But what if he were right? The cost of being right—and failing to protect himself—could be catastrophic. He moved to a mountain hollow, buried provisions, and began the countdown to the year 2000.

Of course, when the big day came … nothing happened. The clocks worked. The trains ran. The power was still on. Apparently, not a single cash machine failed.

People pointed and laughed. But was he wrong? What if the odds of a meltdown had been only 1 in 100 or 1 in a 1,000? Was he not right to give a warning in the strongest possible terms? And wasn't it partly because of him and others like him that billions were spent to correct the problem before January 2000?

Colorful eccentrics, careful analysts, cheerful con men, and self‐assured delusionals trying to figure out how things are put together—this is the world of investment gurus.

But guess what? The gurus are often right. True, some financial gurus have gone broke following their own advice. But many have gotten rich.

In the late 1970s, we undertook a study—with Mark Hulbert, who is still at it—of how well these financial gurus actually perform. We wouldn't presume to summarize Mark Hulbert's nearly 30 years of work; we will just tell you what we took from it: There is no right way to invest.

Investment gurus are an original bunch. They come up with all sorts of systems, ideas, and approaches. Almost all of them are successful—sometimes. There are a lot of different ways to invest and to make money. And often one that works spectacularly well in one period may collapse completely when the market changes course. So, too, an approach that often works poorly under certain market conditions will work poorly in other conditions.

But, generally, an investment advisor who works hard to develop and refine a system and who sticks with it can do reasonably well, sometimes. He can be a technical analyst, a chartist, a Graham and Dodd follower, even an astrologer. Almost any disciplined approach, pursued intelligently and steadily, can pay off.

We have a theory that explains why this is so. Investing is, when you get down to the basement of it, a competitive undertaking. If you do what everyone else does, you will get the same returns as everyone else. In order to get better returns, you have to do things differently.

Investment gurus seem to be favored, in this regard, by their own originality and quirky self‐reliance.

“Sometimes right, sometimes wrong,” they say. “But never in doubt.”

Taken together, they are probably the most independent and contrary professional class in the world. And this contrariness, alone, seems to put them at odds with the great mass of lumpen investors, allowing them to make more—or, often less—than the common results.

By contrast, what seems to doom the average investor is the same mushy quality that seems to be ruining the whole country. He...