If you, like I, make your own stock picks then you know the potential frustration or anxiety of every day finding stock analysts advising you to hold, maintain a neutral position, sell and buy shares of stock in “Company X”. Same company, four differing opinons.
I recently invested in a company whose share price has dropped dramatically in the past 3-6 months. It’s a cyclical stock which, for a long time, has benefited from an upward trajectory. No surprise that the pendulum has swung downward. No surprise that I’ve read a variety of opinions online regarding whether to dump the stock or buy shares now that the stock’s price is at a 5 year low.
How do I know who is right or who to trust when it comes to picking stocks?
The short answer is that I’ve learned not to entrust – give over my decision – to a stockmarket analyst and industry specialist.
Because none of them are right 100% of the time. Some may have a better or longer track record but none are perfect.
Still, I often start my moves by scanning analyst ratings because there’s something rational about not swimming against a tide of negative opinion about a company or a market vertical.
The problem we individual investors face with “not following” the guidance of a stock pickers is 1) our limited time; 2) limited data; and 3) what you or I don’t know about “Market Professionals” Tom, Dick, Harry and Sally. (Yes, there’s still a gener imbalance.)
Do you have time to dig into fundamentals? For me the answer is “yes” when it comes to verticals and “no” when it comes to all players in a vertical. That’s where relying on analysts makes some sense. What is the consensus about trends in the vertical in the short term?
However, when it comes to choosing to invest heavily in an individual stock – either for the long term or short term – that is when I 1) put in the time to read deeply about the company before investing in its stock; 2) when I access all manner of publicly available data – from SEC filings to the company’s on site data and more; and, 3) where I may dig into relationships between pundits and their markets.
There is a time and place for trusting financial advisors as well as a time for keeping your own counsel.