Adding a new business: investment newsletter

[giofranchi]

Mr. Ruggero Carraro is a friend of mine and the Italian partner of Mr. John Mauldin and Mr. Niels Jensen.

 

I know a lot of you on the board are skeptical about the usefulness of investment newsletters, but I think you cannot really imagine how many people in Italy are wealthy, yet still don’t know English well… and therefore cannot invest in the North American markets by themselves! :o

 

Mr. Carraro thought about and implemented an investment online platform for the Italian public, the content of which will be written and presented in Italian. That platform will be inaugurated here:

 

http://www.borsaitaliana.it/trading-online-expo-2013/homepage/home.htm

 

And will begin functioning next week.

 

Mr. Carraro asked me to be a contributor, putting together an index of 50-60 North American owner-operators, and then managing a real portfolio.

Though I actually cannot say what’s the Italian market for investment newsletters (you wouldn’t believe it, but the sector here is still in its infancy: very small, yet growing fast!), some elements made me accept his offer:

 

1) I don’t have to contribute with any capital of mine, so my risk is very limited.

 

2) It is an activity that I will manage by myself, I don’t need to pay any collaborator. My sole cost will be the use of my own time.

 

3) And here is what I like the best: besides translating ideas and concepts in Italian, there won’t be much additional work for me to do. Because basically the job is the same that is already required to manage my firm’s portfolio!

 

4) 20% of all revenues will be for me to keep (a new source of cash which I think is not bad at all!).

 

You all are business savvy. So, I thought it would be wise to ask for your generous feedback. What do you think about this new venture of mine? Do you think it could be somehow successful, or you think it will turn out to be only a poor waste of time?

Any ideas and suggestions would be very much appreciated! :)

 

Thank you all,

 

giofranchi

 

[JEast]

Since I am confident that you will want to be the best giofranchi that you can be, and do right by the folks you will support, I suspect that the effort will take more time than you suspect.  Just expect it to take more time then your original estimate.

[giofranchi]

Since I am confident that you will want to be the best giofranchi that you can be, and do right by the folks you will support, I suspect that the effort will take more time than you suspect.  Just expect it to take more time then your original estimate.

 

Guess I will be forced to post with less assiduity on the board… ;D ;D ;D

 

No, seriously: I understand what you mean, and that is the biggest risk I see too.

 

Anyway, it has already been 6 months that I am working on it, writing about those businesses in Italian, and I hope by now I have at least some perspective on the true effort the project will require. Let’s hope I am not completely mistaken!

 

Thank you!

 

giofranchi

 

[gfp]

I'll add that it can be a very good business.  I know several people who have made 8 and 9 figure net worths entirely in the investment newsletter publishing business.  Email and PDF files drastically improved the economics of an already good business and now it scales like crazy.  It used to cost a hundred grand plus in postage just to send out sales letters to try to build a subscriber base.

 

There is obviously a sleazy side to the business, where sales copy touts big easy money through option trading with your life savings and all that - but that hardly sounds like the service you are going to be writing.

 

The investment newsletter market in the US is very large, I imagine it will be much tougher in Italy to grow your subscriber base above a few thousand but hopefully your partners will market the new product heavily.  It is not uncommon in the industry to pay your entire first year's subscription revenue to the company that brings in the subscriber for you.

[giofranchi]

The investment newsletter market in the US is very large, I imagine it will be much tougher in Italy to grow your subscriber base above a few thousand but hopefully your partners will market the new product heavily. 

 

Yes! Italy is clearly much, much smaller! It won’t be easy, but the market is growing… And a few thousand subscribers will certainly be worth the effort! ;)

 

It is not uncommon in the industry to pay your entire first year's subscription revenue to the company that brings in the subscriber for you.

 

Ah! What can I say? Mr. Carraro is a generous soul! ;D

 

Thank you!

 

giofranchi

 

[giofranchi]

Sounds like a great business - it may even be better than your construction business  ;D.

 

Italy has 2 trillion in GDP and you bring a very unique skill set to that market (proficiency in English). Why stop with the U.S, you can even go world wide and expand to other markets over time.

 

cheers!

shalab

 

Thank you, shalab!

 

With the exception of Lancashire, North America is where my stock market investments are… Yet, who knows? As my circle of competence grows, also the geographical scope of the newsletter might follow suit! Time will tell! :)

 

Cheers,

 

giofranchi

 

[Valuebo]

I have been thinking about this line of business for some time now as well. Recurring revenue, niche market, scalability, decent margins possible, ... Probably quite hard to get traction as a new player though. I think you would at least need some sort of partnership with a national broker, newspaper, finance celeb, .. etc to get things going at a decent pace if you are basically starting from scratch.

 

GL Gio! Keep us posted on how things go. :)

[Valuebo]

Sounds like a great business - it may even be better than your construction business  ;D.

 

Italy has 2 trillion in GDP and you bring a very unique skill set to that market (proficiency in English). Why stop with the U.S, you can even go world wide and expand to other markets over time.

 

cheers!

shalab

 

Thank you, shalab!

 

With the exception of Lancashire, North America is where my stock market investments are… Yet, who knows? As my circle of competence grows, also the geographical scope of the newsletter might follow suit! Time will tell! :)

 

Cheers,

 

giofranchi

 

 

Do realize that you are increasing competition in stocks like LRE (of which I'm sure you'd always like to buy more at low prices) with this service! Not to mention small caps. At least it could have an impact if this grows to nothing less than a huge success, in which case you win anyway of course... ;)

[giofranchi]

I have been thinking about this line of business for some time now as well. Recurring revenue, niche market, scalability, decent margins possible, ... Probably quite hard to get traction as a new player though. I think you would at least need some sort of partnership with a national broker, newspaper, finance celeb, .. etc to get things going at a decent pace if you are basically starting from scratch.

 

GL Gio! Keep us posted on how things go. :)

 

Well, Mr. Carraro is Principal of Horo Capital (www.horocapital.it) and is well known in Italy, with a lot of connections in the business. Moreover, he already enjoys a relatively wide readers base, publishing the translation of both “Thoughts From The Frontline” by Mr. Mauldin and “The Absolute Return Letter” by Mr. Jensen.

This of course is no certainty at all… But I hope it is not starting from scratch either!

 

Thank you tombgrt! :)

 

giofranchi

 

[Valuebo]

That's a big plus then. I believe that we have exactly one (decent) investing newsletter company in Belgium, a subsidiary of the only financial newspaper. I wonder what kind of numbers they get. The do both online and print which probably appeals to most readers given the average age. It's not that good and expense for most folks and I wonder why there isn't anyone else trying to get into this.

 

Can you expand a bit more on the business? I understand if you don't want to answer the following questions, I'm just curious! :D

What other segments is he implementing in the platform? I assume it will be online only? Will the updates but live or in a daily/weekly/monthly fasion, classic newsletter style? How is he pricing the service and with what vision? With how many contributors is he currently working? 20% of revenues is huge, I assume this is before the pro rata part of the costs is deducted and not fixed?

 

Again, feel free to answer or ignore them altogether Gio. GL!

[giofranchi]

That's a big plus then. I believe that we have exactly one (decent) investing newsletter company in Belgium, a subsidiary of the only financial newspaper. I wonder what kind of numbers they get. The do both online and print which probably appeals to most readers given the average age. It's not that good and expense for most folks and I wonder why there isn't anyone else trying to get into this.

 

Can you expand a bit more on the business? I understand if you don't want to answer the following questions, I'm just curious! :D

What other segments is he implementing in the platform? I assume it will be online only? Will the updates but live or in a daily/weekly/monthly fasion, classic newsletter style? How is he pricing the service and with what vision? With how many contributors is he currently working? 20% of revenues is huge, I assume this is before the pro rata part of the costs is deducted and not fixed?

 

Again, feel free to answer or ignore them altogether Gio. GL!

 

Now I really have to leave the office for a match at my tennis club! ;D ;D

 

But I will answer your questions with much pleasure tomorrow morning!

 

Cheers,

 

Gio

 

PS

What does GL! mean?!

[Valuebo]

GL = Good Luck! ;D

 

Ok, looking forward to reading it!

[Kraven]

Gio, as long as you are willing to put in the time required (whatever that may be), and you already seem to be, it sounds like a no brainer to me. Other than time, what's the downside?  Seems like at worst you get a chance to research some companies you would consider anyway and best case it sounds like it could be lucrative. Congrats!  Looks like you got yourself a new part time gig! 

[premfan]

If you show people returns they will flock to your newsletter.

 

That's a great point. You are publicly building a track record with no capital down. From a business point you cant lose. You have no operating expense and it your results are above average this will be easy to scale up. Perfect asset light high ROIC business. Also little to no competitors in a niche business. You already research owner/operators so you are doing what you love. This could be a home run and a great win/win  I wish you continued success.

[Guest hellsten]

You're starting an FRMO clone? Congratulations and good luck.

 

The newsletter business is in theory a very good business model, but as with businesses it all depends on how well you plan and execute. It's always interesting to think about how to build and grow a business, e.g. do you start with a free version and later introduce a paid version.

 

Will you also work on building and promoting the platform and website?

 

Is it a free newsletter, or paid? A free one might get a bigger audience, which will attract advertisers. Having a paid version, or a combination of free and paid (e.g. delayed information for non-paying subscribers) might work. You will have to test different hypotheses to see what works for you.

 

I don't subscribe to any paid newsletters at the moment, but I think the key to most successful businesses is testimonials from happy customers, in this case outstanding long-term returns or simply great content (interviews, etc). The problem is of course that it takes years to achieve those returns, and luck, even if you don't believe in EMT; the market might not favor value strategies.

 

Why not do what you're doing in investing and copy great ideas? I think Manual of Ideas has the best executed business plan of all newsletters — great content, great interviews, great book, great marketing… Just looking at their pricelist gives you an idea of what people pay for:

http://www.manualofideas.com/subscription

 

These features seem to be what institutions (the most profitable customer segment?) pay for:

- Free pass to ValueConferences

- Real-time, actionable idea alerts

- Monthly issue by priority mail

- Unlimited access to research team

- Access to capital provider network

- Thought leadership initiatives

 

My guess is that there are probably many other profitable newsletter businesses that earn more than Manual of Ideas, but most of these are probably using sleazy tactics instead of producing great content and returns.

[gfp]

This company is the largest in the US investment newsletter business - with revenues of several hundred million dollars a year:

 

http://www.agora-inc.com/

[Guest hellsten]

This company is the largest in the US investment newsletter business - with revenues of several hundred million dollars a year:

 

http://www.agora-inc.com/

 

Thanks. I thought Daily Reckoning was just a small business, run by a small team. Difficult to understand how they can earn several hundred million dollars a year and have 400 employees. Is it from advertising and/or subscriptions? Where did you get the "largest in the US" and revenue figure from?

[rjstc]

Gio; It will be in English also? I definitely would like to subscribe. I also subscribe to one other newsletter already mentioned here. Manual of Ideas and their value conferences. They've been great and and I've gotten some very profitable ideas from them. Both in Europe and Japan where I have little expertise. Looking forward to it.  :)

[rmitz]

This company is the largest in the US investment newsletter business - with revenues of several hundred million dollars a year:

 

http://www.agora-inc.com/

 

Thanks. I thought Daily Reckoning was just a small business, run by a small team. Difficult to understand how they can earn several hundred million dollars a year and have 400 employees. Is it from advertising and/or subscriptions? Where did you get the "largest in the US" and revenue figure from?

 

That's only one of their many newsletters, they have all sorts of deals with other companies in terms of promotions and what not, as well.  Those numbers seem high to me even so, but I suppose it's possible.

[constructive]

Sounds very interesting gio - good luck.

 

When you say you are a contributor to the website and will receive a 20% revenue share, does that mean you will have your own newsletter or will you be one of several contributors to a newsletter? And will your essays and portfolio be freely available after some period of time has elapsed?

 

An index of 50-60 owner operators seems like it would be dilutive to your best ideas and take a lot of time. I'd suggest making it smaller, but still talking about companies that aren't on the index.

[giofranchi]

Thank you very much to all the great and useful feedback! Cannot tell how much I really appreciate your help!

 

Ah! By the way, I forgot to mention that I have called my newsletter “The Superinvestors of Singletonville”… almost nobody in Italy understands what I mean… but you surely do!! ;D

 

I will try to answer some questions:

 

1) The platform will provide nearly 10 different newsletters. Mine is just one (and, constructive, I will be writing my own newsletter, I will be the only one in charge of it, and I will receive 20% of the subscription fee for each reader who decides to subscribe to my newsletter), then there is a newsletter about bonds investments only, a newsletter about ETFs (I guess it is a sort of “asset class allocation” investment newsletter), there is also a cigar butt (deep value) investment newsletter, there is a trend-following newsletter, even an “ethical investments” newsletter (never heard about ethical investments before… and I am not sure how well they might perform… but some days ago dcollon sent me this piece of news and it sounds interesting: www.cnbc.com/id/101055952). All those other newsletters will be managed by people I don’t even know. They are all Mr. Carraro’s acquaintances, though I hope I soon will get to know them well too!

 

2) My newsletter will be divided into “free” content and “paid for” content: each week I will publish the description (a brief introduction to) of an owner-operator. And to receive that weekly document, it is enough to fulfill a registration on-line. It is free. This way I think I can put together an Index of owner-operators in little more than a year, and people will receive not only the names of those companies, but also some (I hope useful) information about their past track-record and their future prospects. Then, there is the “paid for” content, which will consist in the management of a portfolio of 10-15 companies in the Index. Those who subscribe will receive a monthly newsletter with results and news about the companies in the portfolio. They will of course receive alerts to buy and sell, every time I add or reduce a position. Both the weekly description, the monthly newsletter, and the alerts will be posted on the platform and sent by e-mail.

 

3) The service will be priced at 250 Euros per year.

 

4) The deal I have with Mr. Carraro is that I keep 50 Euros for each subscriber who wants me to manage his/her portfolio (or at least a part of his/her portfolio). If this sounds too generous, well, I am very glad! Maybe, it is because Mr. Carraro teaches a course inside the Master in Project Management of the Master School “F.lli Pesenti”, Politecnico di Milano, and I pay him good money for each lesson of his! Talk about synergies!! ;)

 

5) For now the newsletter is going to be only in Italian. And, should Mr. Carraro decide one day to publish also an English version, I wouldn’t recommend it to any of you… You all are clearly too well informed and too smart! For now the target is clear: people who still have difficulties with the English language + people who don’t like to manage their own money. That’s it!

 

Thank you again to all of you! :)

 

giofranchi

 

[giofranchi]

Gio, as long as you are willing to put in the time required (whatever that may be), and you already seem to be, it sounds like a no brainer to me. Other than time, what's the downside?  Seems like at worst you get a chance to research some companies you would consider anyway and best case it sounds like it could be lucrative. Congrats!  Looks like you got yourself a new part time gig! 

 

If you show people returns they will flock to your newsletter.

 

That's a great point. You are publicly building a track record with no capital down. From a business point you cant lose. You have no operating expense and it your results are above average this will be easy to scale up. Perfect asset light high ROIC business. Also little to no competitors in a niche business. You already research owner/operators so you are doing what you love. This could be a home run and a great win/win  I wish you continued success.

 

Thank you, Kraven, 50centdollars, and premfan!

Those were exactly my own reasonings! :)

 

Cheers,

 

giofranchi

[MCN]

Is it similar to being an investment adviser, are there regulatory or legal implications with running an investment newsletter in the US or Europe?

 

 

[giofranchi]

Is it similar to being an investment adviser, are there regulatory or legal implications with running an investment newsletter in the US or Europe?

 

Good question! And I haven’t checked it out yet… Mr. Carraro’s firm is an investment advisor, so he will surely be aware of any legal issue that might occur. I will ask him as soon as possible!

Thank you! ;)

 

giofranchi

 

[gfp]

Revenues of somewhere around $400 million a year, not earnings.  They have many products and the business scales like crazy.  They specialize in selling many products to the same customer, so while they may only have 300,000 customers or whatever (probably more), quite a few of those customers are buying multiple products from them.  A single newsletter that costs $100 a year with 200,000 subscribers brings in $20 million in revenues.  Then you sell them premium services, special 'clubs', adjacent products, etc...  You are marketing to a pool of people that are reading your copy and are already interested in purchasing these types of services.  Once you have the customer base, new products are very profitable to launch and market.  The Stansberry business alone is quite large within Agora, as is Oxford Club, Chris Mayer's letters, Palm Beach, etc...  I'm wouldn't be at all surprised if Agora had several employees that read this board.

 

This company is the largest in the US investment newsletter business - with revenues of several hundred million dollars a year:

 

http://www.agora-inc.com/

 

Thanks. I thought Daily Reckoning was just a small business, run by a small team. Difficult to understand how they can earn several hundred million dollars a year and have 400 employees. Is it from advertising and/or subscriptions? Where did you get the "largest in the US" and revenue figure from?

 

Gio - when you say 'manage their portfolios' - you aren't actually going to be managing their money right?  Just having them read your publication?  In the US it is very important to remain regulated as a 'general interest publication' as opposed to any type of investment advisory situation.  I don't know how the rules differ in Europe, but you can get in a lot of trouble here for giving individual investment advice through a newsletter type business.