#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.
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. But 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. A prime example: Brian White, who tried to make a name for himself with headline-grabbing price targets for Apple (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. 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.
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.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves owned a position in Apple.
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