Skip to main content

Sound Advice: February 8, 2023

Buys, Holds, and Sells

One of the fascinating things about the world of investing is the proliferation of stock recommendations.  Most come from brokerage firms, but more than a few come from the print and broadcast media.  Rarely does a day go by without seeing “10 Stocks To Buy Now” or “Five Funds To Hold Forever.”  My sympathies to those who take this stuff seriously.

In the good old days when stock commissions were hefty, as in $150 or more per ticket, big pay days were earned by institutional stock analysts who generated massive tomes of commentary and data about companies they considered outstanding investments.  That was prior to May 1, 1975, when the Securities & Exchange Commission ruled that brokerage firms had to negotiate commissions.  Before then, those reports often ran to dozens of pages in support of the thesis.  In most cases, their best use was as kindling in a fireplace.

Most of the recommendations were Buys and there were usually a few Holds from analysts who could not make up their minds about which way to go.  In rare cases, analysts prepared reports with the heading Sell.

The problem is the reality that both a Buy and a Sell are needed to complete a transaction.  That, in turn, requires a discipline underlying the decision to buy and a discipline underlying the decision to sell.

What’s wrong with this picture.  Everything.  Yet the bombardment of nonsense continues.

This embarrassing situation gets even worse when firms put forth Conviction Lists and when websites assign numerical values that are intended to underscore the likelihood of success for each of the issues that have been rated.  However these recommendations are presented, only those who are extraordinarily naïve would base their portfolio construction on this information.

During my years at Value Line, the well-known financial publication, our written recommendations always had to be consistent with the firm’s Timeliness Ranking system.  Indeed, the theoretical results of the system showed a distinct differentiation between the market performances of the stocks that were covered.  From 1 (Highest) to 5 (Lowest), the price changes over time seemed to validate the system’s output.  But to my knowledge, that theoretical approach was never successful in practical application.

It’s all . . . hogwash.

N. Russell Wayne, CFPÒ

www.soundasset.com

 

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: February 21, 2024

800-000-0000 That’s 800-000-0000 Again, 800-000-0000 That’s the typical closing for the hard sell commercials that are increasingly polluting media airwaves.   These are the commercials for products or services you rarely need or most definitely should avoid. A substantial number are on behalf of groups of attorneys who would have you believe that you and many others may be entitled to cash compensation for having used or being exposed to some evil item or substance some time in the last few decades.   The pitch always includes a comment that there’s no cost to you unless there is a settlement in your favor. Much of this is rubbish, but when the appeal suggests that there’s nothing to lose, why not take a shot.   And, as you would expect, “advisors” are standing by 24/7 to take your call and help get the process in motion.   What kind of advisor would be available at 3 a.m.? One version of this approach pops up every year between October 15 th and Decemb...
Post a Comment
Read more

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more