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There are websites that claim to own formulas that outperform the market. Examples of these websites are - Zacks Investment Research or Investors Business Daily. Each keep a list of equities that they recommend to buy and sell at specific moments in time. If you look at their websites, they claim to provide a 30%+ return on investment. These claims are bold.

I will like to know if these companies have to provide proof of these claims or if someone knows already they are not correct. Is there a sanctioning body that accredits or oversees these groups?

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    IBD is a newspaper. Our SEC couldn't catch a Madoff when his scam was pretty obvious in hindsight, why would you think claims by newspapers could possibly be regulated? – JoeTaxpayer Apr 15 '12 at 5:25
  • @JoeTaxpayer - Thanks Joe for the comment. I understand IBD is a newspaper, however they do keep a list of preferred stocks, and they index them. They are called the IDB 50 index. These are indirect recommendations to their subscribers, is a benefit of being subscribe to these services. I am more interested in knowing if these services provide a benefit for their premium, than knowing if the SEC regulates them. Any insight? – Geo Apr 15 '12 at 13:28
  • Wow. I have to stop commenting at 1am my time. That was particularly unhelpful and unfriendly. Apologies, Geo. I don't have a good answer, but you or others may start by searching on the work of mark hulbert who writes a newsletter strictly to track the claims of newsletters. I'm sure he's written about IBD as well. Happy Tax Day. (17th this year, btw) – JoeTaxpayer Apr 15 '12 at 13:39
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Anyone who claims they can consistently beat the market and asks you to pay them to tell you how is a liar. This cannot be done, as the market adjusts itself. There's nothing they could possibly learn that analysts and institutional investors don't already know. They earn their money through the subscription fees, not through capital gains on their beat-the-market suggestions, that means that they don't have to rely on themselves to earn money, they only need you to rely on them.

They have to provide proof because they cannot lie in advertisements, but if you read carefully, there are many small letters and disclaimers that basically remove any liability from them by saying that they don't take responsibility for anything and don't guarantee anything.

  • From your response I take you don't use any of these paid subscriptions to research your stock picks. Thus, meaning the subscriptions fees are not worth it. Out of curiosity, and I understand this might seem as a separate question. How do you research your stock buys/sells? – Geo Apr 15 '12 at 23:25
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    @Geo I tend to avoid investing in specific stocks, I prefer ETF's and funds. Those stocks I do invest in I research through analyst reports available on my broker's site (ETrade), news, past performance in similar market conditions, etc. – littleadv Apr 15 '12 at 23:38

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