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About 1.5 months ago, I saw a web ad saying something like "click here to see 7 stocks that are going to rise in the following 30 days". I thought it was spam, but the name "Zacks" sounded familiar, so I decided to try the recommendation on a virtual account. I opened an account on MarketWatch, received virtual $100K and spent 1/7 of the sum on each of these stocks. Now, after 43 days, my virtual portfolio looks like this - the $100K became $95K.

Is there any conclusion I can draw out of this experiment? Is it never to trust analysts that promise that certain stocks are going to rise? Or maybe I should just wait longer?

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    click here to see 7 stocks that are going to rise in the following 30 days Ask yourself why would anyone share this information with you for free ? If it is a money making plan won't he(she) keep it unto him(her)self to make a killing. The probable reason is he(she) wants to exit and want some gullible persons, like you, to take his(her) word and buy and help him(her) turn a profit. Next time ignore when you receive such ads. They are there to screw you and not help you. – DumbCoder Dec 23 '14 at 9:14
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    The company that published this offer (Zacks.com) also sells such lists for a fee. So I thought they just wanted to give people a free trial in order to convince them that their lists are good. – Erel Segal-Halevi Dec 23 '14 at 9:23
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    Remember the slot machines which are inherently fixed against you. You win some and loose most. I won't be surprised if people start loosing money after they become clients. Secondly timing is important. They have more information than you, so they can time their entry and exit to make their gains. You don't have all of the information, so you cannot time your entry and exit perfectly. Thirdly compare their paid list and the free list to check their accuracy. In my opinion read their list, but don't necessarily act on their recommendations unless you are satisfied. – DumbCoder Dec 23 '14 at 9:52
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    @DumbCoder - loose rhymes with moose, lose with booze. English is an awful language, spelling-wise. – JoeTaxpayer Dec 23 '14 at 12:57
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Out of your seven recommendations one is up 14%, one up 6%, four are either even or down slightly and one is down a whopping 40%.

This reminds me of a recommendation earlier in the year provided by The Motley Fool to buy XRO.AX when it was around the $40 mark. I had a quick look at it and thought "gee there is no way I am buying those shares". Now they are just below $15. See the chart below:

XRO.AX

You have just learnt a valuable lesson by testing these recommendations without your real money - never trust investment recommendations from analysts (or anyone else). Get yourself educated so you understand what analysts are talking about and you can make a decision for yourself. Better still learn about technical analysis so you can decide for yourself whether it is the right time to buy or sell.

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    never trust investment recommendations from analysts (or anyone else) That is outright wrong to recommend. If your financial adviser, he(she) might also be an analyst, says so then also you don't believe him(her), who might be giving you sane advice. Better frame as the analysts who tout out free advice on the internet. – DumbCoder Dec 23 '14 at 11:25
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    @DumbCoder - if you are acting on blind investment advice from someone (whether you pay them or not for that advice), then it is your own fault if you lose money. Those who are paid to give advice are sometimes worse that those giving it for free. Do you know what kick backs your adviser is getting for recommending you the products he/she has recommended to you? I doubt it! – Victor Dec 23 '14 at 12:53
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    @DumbCoder - by the way the XRO.AX example above was provided by a paid subscription to the Montley Fool for which I got a one months free membership for answering an investment survey. So this must be the sane advice you are talking about. LOL !!! – Victor Dec 23 '14 at 13:00
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    @DumbCoder - there is no need to get nasty. If you want to pay for advice that is up to you. I am just pointing out that they don't have your interest as their number one priority, they have their own interests infront of yours. If you don't want to accept that and just get nasty about things, then you're the one with the problem. – Victor Dec 23 '14 at 13:20
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    they have their own interests infront of yours Not all advisors are the same. That is why I used your example and I am not getting nasty, I am just putting to words what your statements convey to me about you. You are portraying yourself as you know all and not in a good manner. And stop blaming others always without even bothering to look at how you come across to others. – DumbCoder Dec 23 '14 at 13:37
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What you found is that when your were on website X on day y when you clicked on the link they told you to buy 7 stocks and you performed an experiment, but the values went down. Somebody else on website A on day B saw a lightly different list, they may have been flat. But if you were on website W on day D that list hit the jackpot.

Which of the three decided that the people running the ad knew what they were talking about?

They could have tailored the list based on the nature of the website. Sports and recreation ones on ESPN, high tech on a computer focus site. They could have varied the size of the lit, they could have varied the way they described their analysis. They could have even varied the name of the expert to make it sound familiar or authoritative.

What you found was a marketing plan. It may have been a scam, or it may have been just a way to try and convince you they know what they were doing. If you clicked on the wrong list, they probably lost you as a potential customer, unless you can convince yourself that they were close, and deserve a second look....

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If anyone could reliably pick winners, they could make more money by investing in those winners than by selling their advice.

Generally, when someone sends you unsolicited hype about stocks, that's because they're trying to pump the price up so they can dump their own shares before it collapses again.

Also note that, these days, it's remarkably easy to run the scam where you sell half your customers buy advice and the other half sell advice on the same stock. Each time, some of the customers drop out in disgust (half, minus whoever decides to give you another chance) and the rest pay you for the next iteration. You can make a lot of money before you run out of suckers. That, all by itself, is good reason to be skeptical about anyone who doesn't publish their full history so it can be audited for such shenanigans.

  • This is the best answer imo. If someone knew the direction certain stocks were headed in the future, why in the world would that post that information online instead of taking all the profit for themselves? – Philip Dec 23 '14 at 17:49
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    @Philip - if I thought a stock was going to go up I would try to tell everyone I knew that it was going to go up so hopefully they would all buy as well and then they could tell their freinds who would buy as well, and so on. The more people looking to buy the more demand to buy the stock and the higher the chance that the stock will indeed go up. So by posting the information online they are trying to increase their profits & as keshlam said it gives them a chance to also dump the stock for a bigger profit, especially if they need to dump a large quantity of it. – Victor Dec 23 '14 at 22:05
  • @Victor That is also a strategy called pump and dump. That will increase the stock's value without anything changing about it's fundamentals. If you know that a stock should be valued at $40, but it is currently valued at $20 you should just keep buying until the price is $39.99. Why tell anyone else? If you were that sure that you were right, you would just buy as long as the stock is undervalued (aka until other people figured it out). – Philip Dec 24 '14 at 19:03
  • @Philip - prices don't always represent their fundamental value. Greed and fear can drive prices in the short term causing prices to go much higher or lower than fundamental value. If I was an analyst with a reputation and a list of followers and found a stock I thought should double in price over the near future, I would buy that stock and then include it as a strong buy recommendation in my weekly newsletter. I would want all my folloers and all their friends to buy it to so demand increases driving prices up. You would want everyone to be greedy and buying the stock after you have bought. – Victor Dec 24 '14 at 21:13
  • @Victor yes that is my point. :) – Philip Dec 24 '14 at 21:15

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