I sit and write about the markets every Monday (almost, hey I am retired, I am busy) and one thing that I for some reason, have failed to recognize is that I do exactly what I hate, I make predictions.
I give insights that I have from experience and from following certain analysts and then I come up with some bold, or not so bold predictions. I hate when the talking heads get on TV or any of the business radio channels and make predictions , yet I do the same thing.
I guess they aren’t so bad after all, these talking head know it alls.
I would like to say there is a difference between them and me but the bottom line is this, they use whatever tools they have to come up with ideas that may or may not pan out. I do the same thing. I may use my gut a little more and go with maybe a less obvious reason that things will turn out the way I think they will but at the end of the day I predict things.
Sorry.
I think that anyone that follows the business news and uses that information to make a medium term or long term investment decision will be ok listening to whoever they trust, these guys are smart and most of them have skin in the game so they want to be right as much as you do but there are a couple of things that concern me.
The most obvious thing is why is this person telling me his fund is a big buyer of XYZ stock? Is it because he loves me? No. Is it because he only wants me and the other viewers to have success so we can say “Hey that John Smith is really sharp”? No. He/she is telling you something they have already done. They have increased their position prior to announcing this breakthrough idea. It’s legal, but barely. It also has been going on for decades. Research reports get distributed to the biggest clients first. Gives them time to talk it over and decide if they will invest. Then the common man/woman gets that report. The report is two weeks old before we see it and then he gets a spot on some TV or radio show and talks about the fundamentals and why they are in it (Disclosure) and why you should be too.
The second thing is most of these people work for firms that are trying to have some sort of business relationship with the companies they follow. Be it investment banking or some form of advisory business. Another Wall Street business model that has been around for decades.
It isn’t an dirty little secret that the Goldman’s and the Morgan’s of this world are trying to build relationships with companies. It’s a big, profitable component of their business and why would they risk that business with a sell recommendation? Don’t get me wrong, Wall Street firms will put out sell recommendations from time to time but it is generally after they have milked that company for all it’s worth and the stock price warrants a change.
The only time I actually take heed is when a research house initiates it’s research with a sell recommendation. That tells you more than you could ever imagine about the company and it’s a sign to stay away. It is also rare.
However, if you look into that sell recommendation that you just found, look into what has been happening as far as the stock goes. Has there been an increase in short selling prior to this recommendation? Bet you 3 dollars there has been.
As an investor you have to read between the chaff these people are sending up. I like to read research from independent research analysts. I don’t buy into the Wall Street research establishment. I never have for the reasons I have mentioned.
Again I veered off a little but the point I wanted to make is that if you are going to do your own research on ideas, do it, but remember the sources of information matter. This is a business of opportunity and to take advantage of an opportunity so that you will have a better successful financial future.
That is why I still believe in having independent research and an independent wealth advisor to help you through the piles and piles of research and ideas that are out there.
Going back to my penchant to predict, I just think it’s natural to read a billion things about a subject and come up with some firm impressions and from those impressions you extrapolate out to the near future. It is at least for me.
There should be a disclaimer somewhere in here. I am a horrible gambler. When it comes to games of luck I only have one kind, bad. Yet, I have been very fortunate to take home some very big wins on the Super Bowl. I still am terrible though. Give me a hundred dollars and the over under to how fast I can lose it would be two minutes I think. I can research a football game and have every thing fall my way and still lose. I don’t gamble anymore. Lesson learned.
Guess it is true go with what you know. That is why I write predictions about market direction, economic conditions and whatever else I put in this column. I only write about what I know and have experience with. That is why you will rarely if ever see me write on the Bond market. Makes no sense to me, yet it is extremely important for investors.
There is one huge difference between me and every other Talking Heads, I admit right away when I am wrong. I would say that I am right about 55% of the time and that, while not great, is still profitable.
First of all, I know its more than 55% of the time. Second of all, you throw more strikes than balls so you need to stay in the game for the home team!