Stock Analysts: Should Investors Believe Third Party Advice?

in Investment
Dow Jones Index

It is often said that people who are looking for stock advice are only asking to be fleeced.

Internet searches, newsletter subscriptions are inexpensive sources of stock recommendations.

The Internet Search

One can use a variety of keywords to search for stock advice – stock picks, stock alerts, stock analysts. A simple Google search will throw up myriad relevant results.

Some of the popular sites are Elliot Wave International, The Motley Fool, Zacks.com, Investor Place.

Each may have a particular area of interest or expertise. One may specialize in penny stocks, another in blue chips, and others in foreign exchange trading.

Newsletters

Several analysts issue periodic, or daily newsletters (for example Zacks.com Profit from the Pros). Keep in mind that a lot of newsletters contain sales pitches for other products.

Don’t be surprised if the entire newsletter claims to know the next Walmart, but does not divulge the name of any company. Often the reader is ‘invited’ to subscribe to some other publication, usually for a fee, or buy a book, or there is some other ploy.

It takes some experience to read between the lines. The first question to ask is – how strong is a particular recommendation? If an analyst uses terms like ‘maybe,’ take it with a pinch of salt.

Does the pitch sound genuine, or does it look like the analyst got paid to make the recommendation?

READ  Investment Management

Remember the old adage – if someone were making money off the stock market, then they would not tell everyone about it.

Seminars

Look for free invitations to seminars in the mail. Typically the focus is on the more complicated aspects such as options contracts.

At best a free seminar may be an introduction, and more likely than not a sales pitch for other products the investor must pay for.

Entry and Exit

Look not only for analyst stock picks, but also for entry and exit points. Even a good pick is of little use if the investor chooses a wrong entry point.

That is where the individual investor’s knowledge, experience and resources come in handy. Sign up for a practice account if necessary.

The General Market

Stock analysts may be more forthcoming, informative and knowledgeable with respect to where the general market is headed.

That’s because there are little to no vested interests in a particular stock involved when more overall predictions are made.

Recall the analyst predictions when the Dow went down to the 6000 range? In retrospect, it would be interesting to research what everyone thought the market ‘bottom’ would be.


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