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Financial advice, often expensive but not necessarily worth the money, is all OVER the 'Net. Some of it is undoubtedly excellent, some is downright dangerous. How do you tell the difference?
Well, this may be an odd litmus test, but I suggest that the value of any advice is inversely proportional to how badly you want it. If you are a reasonably confident investor, you can take advice as information and use it as a tool, learning a bit from this site and something else from another.
But if you are an unconfident investor, terrified of losing your money and convinced that almost anyone could manage it better than you could, almost any specific stock-picking advice can be bad for you.
I mean this in the most literal way -- "bad" as in you will lose money. Here are two scenarios: Confident investor drops in on three different investing sites and sees five recommended stocks that he knows a bit about. He makes a list and looks up the financials on each stock, checks out the discussion boards to get some other opinions, reads the recent news, etc., and makes a decision whether or not to buy.
Nervous investor just "knows" that no matter what he does, he will make the wrong decision, but he wants desperately to get in on the stock market gravy train, so he signs up at StockSucker.com and follows their recommendations to the letter. Only he can't figure out exactly what those recommendations are. He buys a stock, but how long should he hold it? It goes down a bit so he sells. The next week the stock is back up. Do that often enough....
One site that blithely passes out buy and sell recommendations generated by their "expert system" is InvestorAdvice.com (also known as Govestor.com). Something tells me that the name Investor Advice was inspired by the need to generate as many search engine hits as possible! Their "expert system" is a computer generated rating of all actively traded stocks in the U.S.
That's an intriguing idea. I wish I could tell you how it works, but despite the promise that "Full details of INVESTOR-ADVICE's track record 1984-1999 are available when you go online," I could not find any details of their track record other than some general claims. And I really looked. But I signed up for the service and ran some of their reports.
My first impression of the service was positive (in spite of the somewhat arrogant name -- it's not like someone from The Motley Fool should judge any website by its name). Investor Advice does some things that I, as a consumer, appreciate very much.
For one thing, you can sign up and use the service for a day before they charge your credit card. That's nice. Most places that offer "free trials" make you sign up first and beg for a refund if you don't want to continue. There's no hard sell here, which raises my comfort level right away. Also, they show you their past recommendations on a stock, which lets you see if their program is "working" for a particular stock (an odd concept... that it would work for some stocks but not others).
I picked JDS Uniphase <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JDSU)") else Response.Write("(Nasdaq: JDSU)") end if %> to experiment with because I've owned it for over a year, and I am familiar with its price movements, which have been pretty wild.
The current advice on JDS Uniphase states that the program is "working" short term, but looking at their recommendations in the past, I'm not sure how they can conclude that. Over the past year, their rating on JDS Uniphase has changed from buy to sell quite frequently while the stock itself rose pretty consistently through mid-March. For example, from October 8 through November 12, the stock was rated either a weak, moderate, or strong sell. It was selling for between $30 to $47 back then and is at $98 today having hit a high of $153 in mid-March.
The week it hit its high, the stock was rated a weak buy and the buy rating got stronger and stronger through mid-April as it dropped. Late in April the rating switched to a weak sell where it remains.
I gotta say, if I had sold my JDS Uniphase last June at 20 as Investor Advice advised, I would not be a happy camper today. If there is any pattern to their advice for JDS Uniphase, it appears to be buy when it's high and sell when it's low.
This is not meant to be a review of Investor Advice, per se. I only ran reports for JDS Uniphase (partly because the program required me to relog-in multiple times before actually doing anything. Quite annoying.) That's not enough to evaluate the service. I would certainly have welcomed the chance to check out companies if the site had worked better, and to evaluate their long-term track record, if I had been able to find it online as promised.
I picked InvestorAdvice.com to look at partly because of the name and partly because a friend asked me to check it out. While it would be very unfair to suggest that all investing sites are the same, looking at this one does illustrate what one should look for, the most important being the advisor's long-term track record. Fully disclosed.
The second would be your ability to understand the advice. I had a hard time with that at Investor Advice as well. The "expert" opinions used "proprietary technical buy/sell signals" (proprietary meaning they aren't going to tell you how it works) as well as a fundamental rating that was not explained anywhere I looked.
The third would be: Does the site work well. Investor Advice didn't work that well today, but it was better last week. Perhaps it was just having a bad day. Don't we all?
The final thing I would look for is emphasis. Is the site geared toward providing a service or are most of the pages devoted to selling the service? Every body is in business to make money, but if the hard sell is on, that's a good sign that the service can't "sell itself."
Tomorrow: Advice from a Fool.
Fool on and prosper!