Are “Q-Shares” Really “The Perfect Investment?” What they heck are they, anyway?

Explaining what Jeff Yastine means by "Q Shares", and ID'ing the first one he hints at

By Travis Johnson, Stock Gumshoe, February 6, 2020

So… what’s a “Q-Share?” Are they some magical kind of stock that you can buy, through some secret method, that’s much better than the dumb old regular kinds of stocks you have in your brokerage account?

Um, sadly, no… not really — but there is a rationale worth investigating here, and a secret stock to reveal, so we’ll dig into this latest Jeff Yastine ad for his Total Wealth Insider and see what wisdom we might be able to share with you.

Here’s a little taste from the beginning of the “presentation” …

“‘Q Shares’

“The Profit Exploding Investment Brokers Refuse to Tell You About

“Here’s how you could book quadruple-digit gains from the opportunity no one talks about…

“Today, I am going to introduce you to something I call ‘Q Shares.’

“And even though they are similar to the typical shares in your portfolio, this class of shares is much, much more powerful.

“For example, let’s take a look at Johnson & Johnson’s Q Shares.

“Anyone who upgraded regular shares of Johnson & Johnson into Q Shares, would have made twice as much money today!

“Then there’s Walgreens Q Shares, which are paying investors 177% more than regular shares of Walgreens.

“And Coca-Cola’s Q Shares are making investors 2,769% MORE than Coke’s regular shares.”

These kinds of secret income/secret share pitches get sent around all the time, and that’s been true ever since Stock Gumshoe started publishing in 2007 — some of our very first articles were about deciphering the “secrets” behind schemes described as “801k Plans” (because they’re “twice as good as 401k plans“) and other terms that are lost to my faltering memory.

We’re told that “nearly 1,000 companies” that are offering these Q shares, letting you make 27X your money… and that it’s easy to “upgrade your regular shares” to get “supercharged Q Shares.”

Better still, they’re secret, we’re told…

“They aren’t just keeping it a secret, the companies offering Q Shares are legally barred from telling you they exist.

“When you understand exactly what a Q Share is, you’ll understand why…

“Again, there are two ways you can get Q Shares.

“Through your broker, or directly through one of the 1,000 or so companies that offer them.”

So what’s the big idea? This is just another iteration of the many, many teaser pitches about DRIP and DSPP investing — DRIP standing for Dividend ReInvestment Plan, and DSPP for Direct Stock Purchase Program. Anyone can engage in dividend reinvestment quite easily, just by telling your broker to reinvest your dividends, and they’ll likely do that for free and in perpetuity (some brokers don’t or charge a fee, but most of them offer that service for free).

Direct Stock Purchase Plans and the idea of DRIP investing directly with a company were really popularized thirty or forty years ago, when even a “discount” brokerage likely charged a $20 commission for a stock purchase. They let you buy stock direct from the company, usually through some clearinghouse like Computershare, and often without a fee or with a small fee, and they often also let you reinvest your dividends into fractional shares and even buy fractional shares if you wanted to set things up to invest, say, $150 a month into Coca Cola stock.

That was all part of a real revolution for individual investors, opening up the possibility of building wealth through ownership in solid companies that you can add to gradually over time while letting your dividends compound into more shares, without the high fees charged by full service brokers (remember, forty years ago you might have faced a $100 brokerage commission for buying $2,000 worth of stock — things were not always so easy for small or beginning investors).

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...


Now, though, these DRIP and DSPP options are largely dinosaurs — brokerage houses are climbing over themselves to offer you free stock trading, and free dividend reinvestment, and some of them (Fidelity just recently) are also offering fractional share purchases. All that without saddling yourself with the more cumbersome agreements and friction of the direct stock purchase plans you might want to have for a dozen different companies.

They’re not pointless, to be sure, but they’re nowhere near as compelling as they were even 20 years ago. You can do the same thing yourself, at little or no cost, and it might even be that the real value of the direct stock purchase plan enrollment is that friction itself — if it’s a little harder to set up and manage, and a little harder to sell, then maybe you’ll be less likely to trade in and out of positions, which, on average, would certainly improve your returns. There are still a few companies that offer dividend reinvestment at a discount to market prices, or let you buy direct a little cheaper than the live price, but I’d be surprised if there are many — that used to be a fairly regular thing companies did to attract DSPP investors, since they’re not allowed to advertise those programs, but I haven’t seen a discount like that in a long time.

But wait, doesn’t Yastine imply that these stocks are a lot better than the ones you buy from your brokerage?

Yes, but in every case those are really just illustrating the difference between buying a stock and watching the share price appreciation, and reinvesting your dividends to let those returns compound. Dividend reinvestment does provide some magical leverage for long-term investors, but the dividend reinvestment you get from a special DSPP or DRIP investing strategy is identical to just buying the stock in your brokerage account and asking your broker to reinvest the dividends for you.

The rest of the advantage, if there is one, comes from the “regular investment” you make in that stock — so yes, obviously, if you put $50 into McDonald’s stock every month for thirty years you’re going to do dramatically better than if you just bought $50 of McDonald’s stock thirty years ago and waited. Investing more leads to much better returns, and investing consistently on a regular basis, preferably with larger amounts as your circumstances in life improve, is the gold standard… but again, it doesn’t matter whether you do it direct with McDonald’s through Computershare or you do it in your TDAmeritrade or Fidelity account.

And some of the examples are just misleading, like this one:

“Let’s say you put $500 into buying Q Shares of Raytheon on January 3, 2000.

“Your $500 would now be worth $6,600.

“That’s an increase of more than 1,200%.

“But if you put that same $500 into the stock market, your $500 would now only be worth $1,070.

“Meaning, Q Shares of Raytheon returned five times more than the market.

“That’s a good sum for such a small stake to test the waters.”

What is he really saying there? That Q Shares are somehow five times better? No, not really, he’s just saying that Raytheon did 5X better than the stock market over those 20 years. Which is true, here’s the chart of that total return for Raytheon (RTN) versus the S&P 500 (SPY):

RTN Total Return Price Chart

But does that actually mean there’s something magical to “Q shares?”

No.

If you bought Raytheon shares in your brokerage account, you got a 1,300% return… if you bought direct through their direct stock purchase plan, you got a 1,300% return. It’s the same stock, traded on the same market. I guess if you bought 20 years ago, you might have saved a few bucks by buying direct… but with free and super-cheap commissions at so many brokerages now, that’s probably not true today.

So yes, the “magical” growth of income they tease in these pitches, with a single share of stock bought for $50 that turns into $80,000, is, for all real purposes, simply the most optimistic outcome from the combination of “buy and hold” and “reinvest your dividends,” with the kicker of