Listen to Independent Stock Analysts

People tend to follow the advice of almost every Tom, Dick, and Larry on television or in print. People are scared to think on their own behalf when they are not familiar with a particular subject. Seeking advice from experienced professionals can be helpful. Why would you want to make a bunch of mistakes that could be avoided by listening to someone or reading a book? The trick is determining who to listen to and which books to read. The world is full of advice givers trying to make a living. There is nothing wrong with that, but when it comes to stock analysis, proceed with extreme caution.

Pick your stock analyst carefully. Professional analysts cover a certain number of stocks over a long period of time. Analyst quality is directly proportional to the time they have been covering a particular group of stocks and the amount of money they charge. Free stock analysis is basically worthless. When picking a stock analyst, pay attention to the analyst’s experience and compensation. Analysts working for a large brokerage firm are not acting independent of the brokerage firm. They make money exchanging stock, not giving independent professional advice. Employ an independent analyst that is paid by you. You want unbiased professional opinions. Will your analyst make mistakes? Yes. Analysts cannot be held accountable for unforeseen and uncontrollable circumstances that influence a company’s stock price. For example, an earthquake destroys a company’s most efficient production facility. As a result, the company is not able to produce product and subsequently sales/share decline. You know what that means. Earnings decelerate, which means stock price will depreciate and your investment will take a hit. Professional analysts take into account the following:

• Current economic climate

• Company’s operating fundamentals

• Management initiatives

• Competition

Good analysts develop earnings and other financial projections for the coming 3-5 years. They will make necessary corrections as time marches on and things change. Where does one find a professional independent stock analyst? Have no fear; your public library is here.