I might have given brokers a hard time in my earlier post.
Despite the potential conflicts of interest, and absurdities of putting short term price targets on shares based on ‘valuations’, the fact is even the most independent, diligent, stock analysts have a huge issue when it comes to stock recommendations:
The recommendation they make is universal.
It’s either a BUY, a HOLD, or a SELL (despite the various other descriptions used by brokers such as ‘accumulate’ or ‘strong buy’).
But does a BUY recommendation mean that everyone should by this stock?
Not a chance.
Making a tough job look easy
It’s actually one of the easiest things to do – to recommend a bunch of different stocks a BUY or a HOLD. Eventually, you’ll be able to cherry pick those few that did really well, and show off how great your investing skills are.
You need to be wary when you see the results of any stock picking newsletters in particular – “Here’s three stocks we recommended during the year, all up over 50%!” (just don’t ask about the other 47 stocks…)
Once you buy a stock – the easy part – the hard part is only just beginning.
When it comes down to actually investing money, and managing a portfolio, there are far more difficult questions to answer:
- How will I prioritise which stocks get my funds?
- How much money should I put into this one versus that one?
- Should I buy in stages, or fully commit to this investment now?
- How will I know when to sell?
- How do I monitor my risk? How do I even know if and when my portfolio is getting more ‘risky’? What does ‘risky’ even mean for me?
To be clear, the challenge brokers have with making a recommendation, and then updating that as things change, is a challenge for any value-based investor.
The only difference is that brokers don’t have to worry about any of the questions above – it’s simply a matter of value versus price to them at any point in time.
They can write a new report every week on the same stock, whereas an investor has a finite amount of funds to invest, and realistically only has a couple of opportunities to make an investment decision.…