Be Skeptical of Stock-Picking Advice from the Pros

Stock-picking experts make their living telling retail investors like us what to buy and sell. I (RAH) used to subscribe to several stock-picking newsletters and was glued to CNBC, jotting down what I thought to be hot tips. But after losing money more than once using that so called expert advice, I turned off the TV and let my subscriptions lapse. I concluded that most of the advice was simply not helpful.

I still read lots of articles about stocks and investing, many of which contain useful facts, but I am very skeptical about the opinions expressed by the pros. For instance, the article Nabors Industries Is Full of Energy, BusinessWeek May 12, 2008 issue, shows a price chart for NBR from September 17, 2007 through April 30, 2008 with the caption, DOING WELL BY DOING WELLS. The chart shows an upside pattern, and the accompanying text states that the stock is a bargain and could reach $75 in 18 months.

But the article doesn't tell the reader that the current upside is very steep and may not be sustainable; the stock faces significant resistance at $40; NBR is a cyclical stock with possible sharp downside moves and its best to buy this type of stock on price dips.

What are the lessons here?

Learn to be a critical reader and listener.
The experts are not always right.
Always ask yourself, "Why should I NOT buy a stock?"
Know how to read price charts.

Related Articles:

Increase Your Profits - Learn To Read Price Charts
The Wall Street Buy Machine - Beware

Posted May 7, 2008.