This article was sent out to newsletter subscribers last week. Sign up to get stuff right away…
Its funny how many people want to follow you after seeing the results, but who could blame them? There are so many “gurus” that give recommendations out there. Who can you believe?
I remember 5 years ago when I first started trading stocks. I would tune in everyday to see what Jim Cramer had to say, and then pick my favorites out of those stocks. As simple as it may sound, it actually worked quite well. I ended up with around 30% return in 3 months or so.
A couple months later I soon stopped watching the show. Not because I hate Jim Cramer, but because I grew as a trader myself. His conditions and time frames were not for me anymore.
You might have noticed I said I would see what Cramer had to say and then PICK MY FAVORITE. With the rapid acceleration of media sources that are out touting stock picks, it seems like any old John Doe will come to the market, pick the first few stocks that somebody recommends, and then automatically buy up the shares.
Sometimes you get lucky and win, but, often times, it probably seems like you are coming out on the losing end.
Where most new traders lose money is not listening to stock picks, but how they listen to them. We automatically assume this person knows what he or she is doing, and figure “hey lets bet the house on this.” You end up losing money, and now you want to put the blame on the person who gave you recommendations.
It seems like everybody is quick to blame Cramer for his horrible picks, but just take a second to look at the show’s format. People call in and he is required to give them his opinion on the spot. I don’t care who you are, the success rate won’t be too high.
Now this article is not about Cramer and whether I think he is good or not, but rather on how we are given more stock recommendations than we need, and it is up to each individual to choose what they want to invest in. With recommendations, we are sort of given an upper-hand. Now it is up to you to decide, which is best to invest in.
Just take a look at my 4 stocks for 2009. What happened if you could only invest in one of them and you chose Bank of America (BAC). Sure it is only down 6%, but is that really my fault? What happened if you chose AK Steel (AKS), which is up over 100%?
As an individual trader we all have our own guidelines, time frames, and risk thresholds. What looks like a great move to one person, might not to another. How many shares you buy, may be different than how many I buy.
I was talking with one of my friends the other day. He was raving about a stock that was about to move, and told me I had to get in. I decided to go look at the stock and saw that it only moves so much at a given time. The next day the stock moved up like $0.20 cents and he was going bonkers. I was wondering what he was so excited about.
The thing is he bought 5,000 shares, whereas, if I did invest in it, I would have only bought somewhere between 200-300 shares. We can never really know what the person giving advice is going to do or expects with his or her recommendation.
Trying to wrap everything all together…
My rule is that unless you are paying for a service where somebody tells you what to buy and sell, then you really cannot blame anybody but yourself. Regardless of where you get your stock recommendations, you must always first consider how it will work with your trading situation.
That is why it is important to have some understanding on what you are doing. Trust me, it will make your life a little easier and your pockets a lot deeper…