If you create a new product, you need to market it to create interest in order to sell it. No one will knock on your door and ask you if you have anything to sell to them. You need to reach out to the people, to the masses. Likewise, stocks have to be “advertised” to create buying interest.
With thousands of stocks listed, how do you know which stocks you should be buying? I know that many people own stocks, but how many of them did their study before they buy? I can say a majority of them do not, they just listen to “advertisements” that convince them some stocks are better than others.
Stocks “advertisements” can come in many forms. I shall list some examples below and you can add on to it.
All the resources you'll ever need as an investor
We've gone ahead and done the work. Compiled here are all the resources you'll need as an investor.
This is the most powerful advertisement in my opinion. We are always hungry for news and the media is happy to have our attention. They constantly release comments on stocks and getting experts to recommend. Subconsciously, you start to register the stocks that were mentioned and you will form good impressions of these stocks overtime. And one thing I hate about media is that they try to attribute stock movements to reasons they assumed to be true (most likely not). Such misleading information puts the retail investor to a disadvantage, especially if he/she is gullible and be bought in by such “advertisements”.
Banks hire analysts to research on certain companies or industries and release their reports to the clients and public. These analysts often hold the Chartered Financial Analyst (CFA) credentials which lend weight to their report in the financial industry. Sadly, I would say that CFA is not sufficient to be proficient in finding good stocks. I am not saying all analysts are bad, I believe a small number of them are good. But they may not be able to release negative reports due to the pressure given by their employers or their client companies. If you take a look at the analysts’ recommendations, most of them would say “BUY” or “HOLD”. Rarely you would see a “SELL”. Are there really more good stocks than bad stocks? I don’t think so. I believe in Pareto’s Principle. 20% of the stocks are good and 80% of them are bad. In that case, we should see more “SELL” recommendations than “BUY” isn’t it?
Brokers to me should provide service and not give stock tips. Their livelihood is dependent on commissions and not through the recommendation of stocks. If they are good in stock picking and want to help people make money, they should be a fund manager. I have yet to know a person that got rich listening to brokers, but I do have negative examples. Warren Buffett also said, “Wall Street is the only place people ride to in a Rolls-Royce to get advice from people who take the subway.” Some of you may heard of boiler rooms where brokers promote one stock to clients, in a “pump and dump” operation. You can watch this year 2000 released movie, “Boiler Room“.
Financial Planner recommendation
Our financial planners in Singapore are not allowed to recommend stocks. They can only sell licensed investment products which are mainly unit trusts or investment-linked insurance products. Readers of BigFatPurse would know that I have negative opinions on unit trusts. Most people do not take charge of their financial planning and would usually take advice from their financial planners. They put their financial destiny in the hands of their planners, without thinking whether the planners are really taking care of them. It would be good if the planner is ethical. But you know most people in this world is selfish, every man for himself. Do you think the planner cares more about your well being or his/her well being first?
Friends and family stock tips
There will be many trustworthy friends and family members whom you respect. But this does not mean they would give sound investment advice. Sometimes I hear things like, “my friend said this stock can buy because he said the company is going to make a lot of money from this project.” I wonder if this person has done his own research or simply bought into his friend’s advertisement.
Top volume counters
The default screen on my broker’s platform shows the Top Volume stocks for the day. Likewise, you see it on SGX website when you click “Prices, Indices, Statistics”. This is the most subtle “advertisements” you would ever know. This method is what big boys in the stock market use to attract buying interests in stocks they want to manipulate. You would know when unknown counters appear on the top volume counters once in a while. This big boys will accumulate stocks before hand and boost the stock price by buying it up. The rising volume and stock price would attract attention from punters and speculators. When the retail investors are getting in driving up the demand, the big boys will be selling to them. The stock prices cannot sustain without the big money and fall eventually.
I have learned to ignore all these “advertisements” everyday. I treat them as noise and you should too in order to save your money.