In an attempt to make money in the stock market, many investors – especially novices – follow experts on TV. They buy what they buy and sell what they sell. Maybe not every stock they mention, but it’s easy to be swayed by experts who seem so sure and confident.
But don’t do it. It will only lose you money.
1 – These gurus can be wrong. Some, like Dennis Gartman who in this video from CNBC copped to being wrong, recently gave a horrendously bad call on the overall market. Gartman is not the only one, but he is someone that you see a lot on TV. Google him and check the history of his fund and his bad calls. They’re extensive. This is not to single him out; he’s just someone who came to mind the soonest because CNBC trots him out so frequently.
2 – Experts may buy a stock that fits with their plan but not yours. For example, a talking head may want to buy an energy stock because they don’t have any exposure in that sector and they want to have a more well-round portfolio. This may not be the case for you.
3 – They may be hedging. Fund managers often buy or sell a stock to limit their risk on something they already own. It’s called hedging. Chances are next to zero that your situation is the same as theirs. Plus, hedging may not be a strategy that you embrace.
4 – They’re backed into a corner. Conflict makes good TV and a common method to build drama is to have two or more experts face off and give their opinions about a group of similar stocks, like “What would you buy… Facebook or Twitter?” Given those two choices, they will pick one, but it’s not an endorsement outside of the contrived situation.
5 – The expert is talking his/her book. When a fund manager buys a stock for his portfolio or book, as it’s sometimes called, he wants it to go up in value. That’s obvious. What’s also obvious is that the more people who buy this stock, the higher it will go. So, it behooves the manager to say how great this stock is so viewers will buy it. Is it illegal? No. Is it unethical? Maybe, which is why CNBC and other media often disclose the experts’ holdings. But do people read the fine print? Not often enough.
Remember: No one cares more about your investments than you. Listen and learn from others. Get ideas from others but do you own homework, and be wary of experts who tell you what to buy or sell.
A former Washington correspondent for Business Week magazine, Larry Kahaner is the author of 15 books, including the best-selling Competitive Intelligence, a Book-of-the-Month selection that has been translated into six languages. He has also written Values Prosperity and the Talmud; Business Lessons from the Ancient Rabbis, The Quotations of Chairman Greenspan and AK-47; the Weapon that Changed the Face of War. Full bio.
His in-person, interactive, multimedia presentation titled Fiscal Fitness Boot Camp is available to colleges, universities and companies. You can email him directly at Larry Kahaner.
He is represented by Wolfman Productions, Inc.