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I've subscribed for a free 2 month trial to a stock research company and so far it has made me good money so far.

I've now been offered a 1 year subscription for a fee of $599. I have a capital of $20k on my stock trading account.

I don't know if I should simply evaluate it as "Am I making more than $600 in profit with their stock recommendations?" since past performance is not always indicative of future events.

Should I subscribe to a stock research company? Should I not? How much should I spend on stock research?

  • 2
    "it has made me good money so far"...but how has the market performed over that same time period? How would a simple index fund have compared? – Craig W Feb 19 '15 at 4:31
  • Firstly who is the research company, and secondly and most importantly, have you got a written plan incorporating when and what you will buy, when you will sell, your position sizing and your risk management. Then you need to figure out if the recommendations from the research company fit your plan. – Victor Feb 19 '15 at 9:28
  • Don't pay for stock research companies ever. There are many analyst reports which are available online for free. And do always read the in house broker reports for the companies you follow. Their reports are much valuable as they have access to better company data then people outside the firm. – DumbCoder Feb 19 '15 at 10:10
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You should spend zero on your stock research company. If the management of the company actually had persistent skill in picking stocks, they would not be peddling their knowledge to the retail market for a few hundred dollars. They would rake in millions and billions by running a huge hedge fund and buy themselves a private island or something. Unfortunately for them, hedge fund investors are not as gullible as retail investors and are more likely to sue when they discover they have been lied to.

Many stock "research" companies are trying to manipulate you into paying too high a price for stocks. They buy a small stock, recommend it, and then sell it at the artificially (and temporarily) high price. Others are simply recommending stocks pretty much at random. You could do that just as well as they can, and for free.

Portfolio performance evaluation is a complex problem. The research company knows that its recommendations will "make good money" about half the time and that's enough to bring in a lot of uninformed people. To know whether your portfolio actually did well you need to know how much risk there was in the portfolio and how a competing "dumb" portfolio with similar characteristics fared over the same time period. And you need to repeat the experiment enough times (or long enough) to know the outcome wasn't luck. I can say confidently that your portfolio performance doesn't back up the claim that the research company has skill above and beyond luck. Much less $599 worth of skill.

I can also say very confidently that there are no investors with a total of 20 thousand dollars to invest for whom purchasing stock recommendations is worth the cost, even if those recommendations do have some value. Real stock information is valuable only to large investors because the per-dollar value is low.

Please do not give money to or otherwise support a semi-criminal "stock research" enterprise.

  • You raise many good points. Thanks. I've decided not to take the offer. :) – Mark Gabriel Feb 20 '15 at 15:09
  • Very well said! In last few years I am slowly moving away from trusting anyone else's recommendations, advice, targets and commentary by the shitty analysts on the business news channels. From time to time, markets have shown us shitty companies getting inflated with manipulative trading. So I don't trust anyone nowadays. I prefer doing fundamental analysis and study of a company all by myself in my best capacity. That way if the decisions/research go wrong I don't have to blame anyone else. Learn from mistakes and move on. – Pale Blue Dot Apr 26 '17 at 18:42
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To complement farnsy's answer, I want to warn people against market prediction scams.

If they give uniformly distributed buy/sell predictions to 256 people, one of them will get eight correct predictions in a row.

They are trading a few cents of Amazon server time for 3% of your capital.

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