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Experts, Publications Or Algorithms? Who To Turn To For Stock Picks

Everybody wants to have only the best stocks in their portfolio. This need leads us to the question – Who to turn to for stock picks? While you can very well pick your own stocks, reaching out to experts, publications or using algorithms to arrive at the perfect stock is a more sure shot approach. Let’s take a look at how they help you pick stocks.

Expert’s Advice

 
Advice
 

An expert is anyone with a comprehensive knowledge of a subject matter. It is true that when you enter the stock market you do tons of research and gain sufficient market expertise. But, there lies a huge difference. While as a regular trader, you might possess knowledge of the first layer of a stock market and companies, stock experts have detailed knowledge of the trends of the industry, market, and the company. They are privy to insider knowledge, which people like us might not possess.

How Expert’s Help?

There are experts, and then there’s the rest of us. However, many believe that stock picking experts are poorer at predictions than dart-throwing monkeys. While that certainly isn’t true, these experts do make wrong judgements at times. They’re humans too after all. So how do you rely on them? First thing’s first- too many cooks spoil the broth. Don’t bank on the advice of 5 different experts, otherwise you’ll just end up with a chaotic portfolio. Identify a reliable financial expert and conduct your own round of research on the stock advised. This way you’re not blindly going by the word of the expert, but using your judgement too.

Should I Take The Word Of Publications?

 
Publications
 

Publications from Standard & Poor, Morningstar, Value Line Investment Survey, Amigobulls and Investor’s Business Daily help spread vast amount of knowledge. These publications provide important information related to the company’s financials and its general business. Keeping up with these publications can definitely help you assess stocks of various companies and also predict its future direction, to an extent. Extensive reports like the 10-K, 8-K, Cashflow, Balance Sheet, and Earnings report can be obtained via these publications. You can always bank on these to identify an opportunity since they reflect the true financial data of a company.

Can Computers and Math Be The Answer?

Many people look up companies that are making news, study recent stock trends, and analyze favorable media presence to invest in a stock, hoping it would go higher. Then there are those who buy stocks of companies that make products they like. And then there are those cool-head know it all accounting ones, who take the tried and tested fundamental and technical approach. Who’s to say their approach is wrong? But, there’s another way to pick stocks. A more analytical and more technical method – The Algorithm Method.

What Is This Method?

 
Forecast
The table on the left is the stock forecast. The green box represents a positive forecast and the red represents a negative forecast. The table on the right represents comparison between the actual stock performance and the algorithm prediction.
 

In this method computers, math, and a set of algorithm rules are used to pick the best stocks. These algorithms detect the movement or the waves in the market and predict future movement. The algorithm is fed with input from various stock related sources. Contrary to popular belief, stock picking algorithms are not random predictions. You need to patiently follow stock fundamentals, price moves, news, company reports, management changes, industry growth, economy, and politics.

The Verdict:

In all honesty, there’s no one particular method that can stand out as a clear winner. Most of the stock picking strategies are connected by the hip. Stock picking is much like an art form, it requires the use of a combination of techniques to reflect a perfect result. Blindly taking an expert’s advice would be foolish, but completely ignoring it would be even worse. Publications are sources of knowledge, not the bible of stocks. Use them wisely to arrive at a decision. And finally, algorithms don’t have a mind of their own, so they obviously can’t be trusted completely. But, it can be used as a tool to focus and forecast fruitful opportunities.

References:
http://www.theatlantic.com/business/archive/2014/10/do-financial-experts-make-better-decisions-than-the-rest-of-us/381902/
http://www.mymoneydesign.com/personal-finance-2/stocks/experts-find-good-stocks-9-month/
http://www.altaassociates.com/expert-advice
http://seekingalpha.com/article/960271-stock-picking-by-algorithms?page=2

Image References:
http://iknowfirst.com/stock-picking-by-using-algorithms-7-62-average-return-in-7-days
http://geek4eva.com/2009/09/14/guidance-on-avoiding-redundancy/
http://energy.gov/eere/services/publications





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