September 6, 2018

Stock tips are a lie

"You must not lie", said Abraham, the founding father of the three big religions. Stock analysts don’t follow his word because that’s what they’re being paid for. Stock tips sell best if they’re believable. And something can only be credible if many people already know about it. In case of stocks, this means, that people already know it is successful. Today, this applies to high tech and biotech companies like Tesla and Apple and obviously popular brands like Coca-Cola and Nestlé.

So, if you want to make money with your stock tips, you should stick to well-known companies, and people will believe you. For example, Nestlé, you could point out their profit increases over the last 10, 20 or 50 years. What you would leave out is that these profits have been generated with products that have reached the end of their life cycles, like milk powder for babies or Nescafé. Likewise, you would omit the fact that sugar has been identified as a health risk and that lemonades might soon not be that sexy anymore. This is how you produce a good "buy Nestlé" story, by omission.

However, stocks don’t care about the past, only the future. And for the future, the only thing that counts is what you don’t believe in, because the things you believe in are already considered in the stock price.

What does that mean for you as an investor? If you invest according to popular opinion, then your investments might be more secure, but not very profitable. The simple reason is that many others will jump on the wagon as well. If you want more profit, you have to take risks when investing, that means to go against the prevailing opinion.

So if your investment advisor wants to tell a believable story, he has to lie to you, because you won’t believe him if his story seems implausible. If he wants you to trust him, he has to tell you things that trigger something in you. He cannot recommend things that will take you into the complete unknown. Only adventurers feel comfortable in this area. And if it turns out that he was wrong, you will surely leave him. He doesn’t want that either. That’s why he sticks to popular opinion.

The problem is that this approach won’t make you any money. The prices are already too high and for this reason, there’s also a good chance they will fall. The popular judgment is then that this is a bad advisor.

For this reason, use our stock ratings because they are only based on financial facts. They are based on comparisons. By using them, your investments will be anti-cyclical, because the Top 10 lists only contain stocks that are currently being neglected by most people – and are, therefore, cheaper.

Next week we will resume our weekly stock purchases after the long and restful summer break is over. We’re ready.

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