Candlestick Trading Blog

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In searching for good investments, investors often run across stock recommendations. No one has the time to closely research the entire stock market for good stock picks, so taking advantage of someone else’s stock research can be very helpful in choosing stocks. To make the most effective use of each stock recommendation it is wise for the investor to have an investment strategy in place and to consider each recommendation in light of portfolio diversification, investment risk, and long term investing goals.

Stock recommendations come from friends, pundits on the television, and your stock broker. They come from many sources, online and in print, with their own agenda. Without being unnecessarily suspicious it is always wise to take someone else’s recommendation with a grain of salt. For example, when large brokerage firms are part of the sponsorship of an upcoming Initial Public Offering (IPO) of a stock they will benefit from purchases of the stock above and beyond the commission they will receive. Another brokerage example of a stock recommendation with an ulterior motive is when a brokerage firm has stock in house and wants to unload it as the market is going down. This practice is, at heart, a conflict of interest. For the investor the best defense against bad recommendations is to compare the stock’s attributes with the investor’s own criteria for buying or trading a stock. If the stock fits, buy it. If it doesn’t fit the investor’s research criteria don’t buy and be skeptical of the advice giver in the future. If the investor simply doesn’t know anything about the stock or market sector, such as copper futures, corn futures, or crude oil futures, it’s wise to stay away.

Sometimes the psychology of investing is what drives stock recommendations. “Everyone is buying” is a subliminal message that can get into the head of the investor. Everyone is buying stock and everyone might lose their shirt, too. The dot com bubble burst and lots of folks got hurt in the recent market crash too. Having a clear idea of what criteria to apply to a stock before buying is crucial. Young investors can typically invest in stocks in riskier market sectors as they have time to ride out the downs until they turn into ups. Older investors need to protect capital while heading into retirement and should avoid riskier investments.

Investing basics are that the goal is to make money and not to lose money. Although a good stock advice can lead to excellent financial gains, a poor stock advice can lead to a severe loss of investment capital. A useful investing strategy is to take a stock advice and look at it objectively. Take the basics of the stock and use online trading software of a discount broker to run scenarios of the investment in different time frames and circumstances. Make sure the stock in question fits current investment strategies and buy stock only if all criteria work out. Stock recommendations can be excellent and a great time saver. The key is to have a plan for how to analyze stock advice and make sure that the stock in question fits appropriately into a well thought out investment plan.