#5: Fashionable Investments With False Pretenses
This category of investment can sometimes be of the criminal variety, but oftentimes can hide behind the idea of free speech in their “commentary” as they try to pump up a battered stock or push down a company unfairly for personal gain.
And don’t be fooled by the idea of personal gain as share appreciation. Sometimes, all these people are after are your clicks on their website or your subscription to their “elite” newsletters.
These Wall Street pickpockets prey on investors in the following ways:
- Offering opinion as fact: Fluffy marketing about your product is par for the course for any company. Most folks know to take any company press release with a grain of salt. But in the financial media and blogosphere, sometimes it’s hard to know what the source is. Phrases like “best-selling” or “industry leading” must be attributed to hard data (and time frames) to be meaningful.
- Masquerading as the “smart money”: There are some great minds in financial media. There are also some hucksters. Finding someone you can trust is not easy, but even when you believe you have found a real ally in the stock market, you always should be careful of folks looking to protect their own positions or to get ahead by making hyped-up claims. I’m talking about you, Brian White, looking to make a name for yourself with headline-grabbing price targets for Apple (NASDAQ:AAPL).
- Hiding their true track record: There are certain benchmarks for greatness in all industries. A perfect game in bowling is almost expected of the great players, but a perfect game in baseball is a holy and rare event. In the stock market, perfection isn’t even close to attainable. So beware of the misinformers who are afraid to offer up track records with blemishes. The bottom line is that no stock goes up every day, and no stock picker is right every time. Particularly egregious are those hucksters who use “back-tested data” for their track records. Under that model, since I own Apple (bought at $550 this spring) I could say I have “backtested” returns of 16,500% through 1980 when Apple went public. I wasn’t even in kindergarten then … but hey, it looks good on a marketing message.
So how do you protect yourself from these kinds of pickpocket schemes? Simple: Demand consensus, and read voraciously. Never accept anything at face value and never rely on a single source no matter how trustworthy.
This includes me, for the record. If I can’t stand up to scrutiny don’t follow my advice, and please harass me at email@example.com to make fun of my errors. I don’t pretend to be perfect, and I welcome the two-way communication.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves owned a position in Apple.