Today we’re looking at a pitch from Tom Dyson and his colleagues at Palm Beach Letter, they’re selling their Palm Beach Confidential service — and one of the ways they’re selling it is by promising that they’ve got an investment that could return eight times your money if gold goes up just $150.
What? OK, this seems like something we need to check out. Here’s part of the intro from the email I got:
“I just got off the phone with a friend who’s very connected in the gold industry. And he told me about a tiny company whose price rises exponentially when gold prices rise.
“In fact, if gold goes up just $150 more per ounce—this investment could return eight times your money.
“From 1999–2011, gold prices rose to $1,920… And a similar gold company returned an extraordinary 3,754%.”
And the “mea culpa” from the beginning of the ad…
“For personal reasons, I’ve withheld this very profitable gold trade from you… Along with several other promising opportunities only my friends and family know about. Here’s how I plan to make the situation right, starting today.”
He hasn’t withheld this “profitable gold trade” from us, of course, since we’re not subscribers — but he has apparently withheld it from people who’ve been paying for his ideas, and he’s now rectifying that by offering subscriptions to the far more expensive Palm Beach Confidential.
After all, the best ideas come from the most expensive newsletters, right?
And the pundits know in advance which ideas will be more profitable than others, and restrict those to the “upgrade” newsletter?
[Those who answered “yes,” I’ve got a special deal for you — I’ll offer you a version of Stock Gumshoe that costs one hundred times as much as our current membership. Don’t worry, it’ll all be top-secret stuff. It’s so cool I can’t even tell you all about it now. Just send me the money, believe me, it’ll be huuuuge.]
In a crazy bull market for a particular commodity, like we’ve seen for gold so far this year, it’s typically going to be the small cap stocks that are in that sector who show the most incredible gains (they’re also the one with the most horrific losses in a bear market), and it’s true that many newsletter publishers save their more volatile small-cap recommendations into higher-priced newsletters — both because those are sexier ideas that are more fun to sell, and more likely to generate possible 100-1,000% gains and get people excited about pricey letters, and because they’re the kind of stocks that can’t handle 20,000 people all buying them at once… you need a smaller group, or no one will have a chance to buy near a fair price and all your subscribers will be mad at you.
When thinking about newsletters and the promises they make in their ads I think it’s important to remember that these are, before everything else, marketing businesses — the basic business plan for most investment newsletters is essentially a funnel, they get in as many lowish-cost (under $100) subscribers or free subscribers as possible for “front end” or “entry level” newsletters, and that creates a hugely valuable pool of people to whom they can profitably sell their “back end” newsletter for $500 or $5,000 or whatever it is, and for a lot of publishers they spend so much on marketing that the “front end” letters really just break even — it’s those back-end newsletters that make the business work. You either need huge numbers of low-cost subscribers who you can acquire without paying too much for marketing and refunds, and who will renew for years (the marginal cost of fulfilling each new subscription is almost nothing, after all — it’s the cost of acquiring each new subscriber, even free subscribers, that can be high), or you need a pretty good “upgrade” rate to get those subscribers quickly up to the point where they’re generating high-margin returns for you. That’s why the advertising never stops, even after you’ve subscribed to an “entry level” letter — the person who just bought a $50 newsletter is, in many ways, the best possible candidate to