Guestpost by Jeffery “Jeff” Cooper
When it comes to investing in the stock markets, individual stock picking can be both interesting and exciting at the same time.
The ideal scenario: You get to know the company, study its numbers, how it is making money, and then decide if it fits in your investment portfolio.
The reality: Most of us (myself included when I started out investing 😬) skim briefly through a few articles, Youtube videos, or financial tv shows and decide to invest or not in a specific company based on the “specialist”‘s advice.
While this can be seen as a form of informed research, this way of quickly researching information might actually work against you and cost you money in the long run. My friend Jeff is our guest today and he explains why you should stop following stock-picking advice from financial articles and other media outlets.
Stop Following Stock Pickers Advice
You’ll see the ads everywhere. “He predicted Amazon, see his next prediction” or “We picked a stock that went up 1000%” and we don’t hesitate to click. What you’re normally led to is a big long article giving you cryptic information about “the next big stock” and whatever site you’re on has the inside scoop. Most of us will read the article and when you get to the bottom, they cut you off and say you need to pay up to get the stock tip or the newsletter that will make you rich.
Hopefully, most of us are smart enough to avoid these paid subscriptions, but what about what’s out there for free? Sites like Kiplinger, CNN Money, Yahoo Finance, the list goes on all have their “Stock Picking Experts” ready to give the information away for free. The problem here is no longer that they are trying to scam you and take your money. The problem is that no matter who you are getting your stock advice from, it’s all just guessing. Now, it’s more of an educated guess, but picking the next big stock from the thousands available to you is just damn near impossible.
No One Can Predict the Market
Here’s the thing, no one can truly predict the market, if they could, they wouldn’t be writing about it for a living, that’s for sure. Yes, we can look at past trends and track records and all sorts of numbers to back up an opinion, but in the end, the market and each stock in it is too unpredictable to have any idea what’s going to happen. With any advice comes the disclaimer: “Past performance is no indication of future performance”. That is literally saying that this is what happened before, but we have no idea what will happen next.
We don’t even have to look that far back to see just how unpredictable the market can be. Now, this is an extreme case and is an absolute outlier, but look at the recent GameStop Saga. This is by no means an indication of typical market behavior, but it really goes to show you that any stock’s value is really based on what the next person is willing to pay for it and not always about the company itself.
They don’t even agree with each other
If sorting through one “expert’s” pick wasn’t hard enough, you can find drastically different opinions on the same stock and any given time. A few days ago, I did a search for “Top Stock Picks 2021” and found this article from Kiplinger, a well-known investing and finance site\publication. I took the first stock they had listed, at a Strong Buy, and googled it. I quickly found another site that had it as a hold and another listing it as a sell candidate. There was about a 2-month difference from when the Kiplinger article was published, but it still goes to show you how the same stock can be viewed very differently and that was literally the first one I looked at. I went through a few more and found mixed results all over the place, so who do you believe?
Stats can be deceiving
A lot of the stocks picked will have stats to back up their reason, which is great, but stats can be deceiving. No matter what the topic, you can always find a statistic that will back up your claims, but if you look, you’ll find plenty that contradicts it as well.
For example, I can go out and say that a companies revenue has gone up 50% the past year and you would think that’s great. What I could leave out is that the year before it had gone up 100% or that analysts were expecting more growth from the company. Sticking with revenue, I can say a company pulled in 500 million dollars last year and reduce costs by 10%, sounds great right? But, that company still lost 400 million dollars overall, not so good. These are made-up numbers, but if you look at companies like UBER, it’s not an uncommon statistic.
They only show their wins
Many of the ads I mentioned before will tout the few stocks they really got right. Well, If I was picking 20 stocks a week for 10 years, I’d be bound to hit on a few as well. What about all the ones they got wrong? I’m not saying every stock they pick is a clunker. In fact many probably do alright, but again, you have no idea which ones will be the winners and which ones will be the losers. Just remember, no one is going to advertise the 100 times they got it wrong, only the few times they got it right.
The best actively managed fund don’t beat the market
Here are two articles that will further drive home my point:
Long story short, both articles call out that most actively trade mutual funds don’t outperform the market. These are people that are at the highest level of stock picking and most of them can’t do it over the long haul. Yes, there are some managers out there who are able to outperform for short amounts of time, but in the end, the market will catch up to them.
So What Do I Invest In?
In the end, we all need to invest in what we think will succeed. Take in a few sources and form your own opinion. Stocks should by no means be the bulk of any investment portfolio. Index funds are becoming immensely popular and for good reason. For us long-term investors, they just can’t be beaten. Low fees and likely the best returns over the course of 10, 20, or 30 years.
There are also plenty of ways to invest outside the market as well that have different risks and benefits.
Conclusion
Everyone is always looking for an edge over the next guy. Gaining that little bit of information that will make them rich overnight, but that’s not really how investing works. Tuning out all the “experts” is really the best thing for new or experienced investors. With so much information out there, any stock can look like a great investment, but in the end, we are all subject to the risk and swings of the market. Your best move is to take the slow and steady approach and if you do decide to invest in a few stocks, do your own research.
About the author
Jeff Cooper is a father of two, an avid runner, and a crazy Mets fan. He blogs from time to time too. You can find more by him at HYDMS. Jeff writes about all things personal finance, side hustles, investing, and everything in between.
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I would like to thank Jeff once again for sharing his perspective on the stock-picking advice we often see when we look for financial information.
No matter what you want to invest in you should always do your own research. For stock markets, if you do not have the time to dig into the financial reports of each individual company, low-cost index funds will be your best option for the long term as Jeff mentions.
If you want to know more about investing in the stock markets. I highly recommend these books The Intelligent Investor, The Simple Path to Wealth, The Psychology of Money. And if you are looking for a course that will give you the tools for choosing the right individual stocks for you, have a look at the Simply Investing course by my friend Kanwal.
What about you friends? Are you following any particular tv show/website that has helped you with choosing the right stock? Any horror stories? Let me know I’ll be happy to hear!
If like Jeff you wish to collaborate for guest posting or sponsored posts please do not hesitate to reach out by e-mail jon@joneytalks.com and of course, for everyone, do follow us on social media as well for more great content, check our Facebook, Instagram, Twitter, and join our e-mail list. I would love to connect with you!
Disclosure: Although I hold a degree as MSc in Business Engineering and am passionate about personal finance, I am not a licensed financial advisor. Always consult with a professional before making any major investment decision. The contents on this site are for informational, educational, and entertainment purposes only and do not constitute financial, accounting, or legal advice.
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