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How NOT to pick a stock

March 16, 2010 · 0 comments

in Personal Finance

Picking the perfect stock is a very difficult thing to do.  When I read about a stock that had a 400 percent increase in price over the past year, I get frustrated that I never discovered it.

One of my favorite finance websites is Yahoo Finance.  You can access income statements, balance sheets, news, etc  on any company that is publicly traded.  One thing you can also find though is bad advice.

The very last place you should look for stock advice is message boards.  I have never read so much contradictory garbage in my life.  Just 2 weeks ago I was researching a stock and read the message boards.  One individual had posted  ‘This stock is overvalued, I just shorted at 14.47’.  This poster also went on to state how stupid people were to buy this stock at such high prices, sell into strength, and so on.  He was trying to get the stock price to decline so he could profit off his short position.    Of course, a couple days later, he said he was just kidding and that he actually bought the stock in the low 15s.  I suspect that post was strictly to gain  some credibility, which is exactly what he had already lost.  The point is, some posters have their own agenda.  They want the price to move in the direction that will provide the most profit to them.  Obviously, this is not true of everyone, there are also some very honest people out there that provide some  good insight.

Overall,  I am not saying to not read the message boards.  Just make sure you take what information you learn and try to substantiate it by reading news articles and looking at the financial statements.    Of course, you can do all the research in the world on a company, only to see the price go in the opposite direction of what you intended.  If that happens, at least you had made the best decision you could based on real data, as opposed to buying/selling on emotion.

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