How to Select a Stock Picker
A stock picker is someone who consistently picks winning stocks that appreciate in price. The Internet has made it easy for people to offer stock picking services online and claim superior returns. The question is how to find a reputable service and verify performance claims.
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Instructions
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Understand the picker’s basic philosophy and methodology. There is more than one way to make money in stocks. While you are not the one doing the picking, you need to understand the picker’s approach and be comfortable with it in order to take advantage of his services. For example, a stock picker may indeed have 50 percent-plus returns in small cap stocks, but if you don’t feel comfortable trading fast moving small caps throughout the day, the service, as legitimate as it may be, may not be right for you.
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Obtain a list of past picks from a particular period and mark up the buys on the stock charts. This will help verify two things: the timeliness of picks and performance claims. Timeliness is the most important criterion: you need stocks that are going up right now, not the ones that have already gone up a lot, or that the picker thinks will go up at some point in the future.
Performance can be more accurately evaluated by checking past buys against their charts. Some stocks run for just several days or weeks, others run for 6 to 12 months; still others should have been sold at a small loss early on, or never bought in the first place, so there is no point in applying an arbitrary time frame to all past stock picks across the board. The actual runs give you a more accurate measure of performance and a better idea of what to expect from future picks.
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Find out if the picker offers only buy or buy and sell recommendations. Buying right is only half the job. Knowing when to sell is at least as important for locking in gains.
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Make sure the picker is accessible and responsive to your needs. That does not mean frequent online chats--the picker needs time to find good stocks--but a blog or online publication where he presents his philosophy, explains his approach and answers subscribers’ questions will do.
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Tips & Warnings
Beware of claims that are too good to be true or incomprehensible.
Stay away from penny stock (stocks priced below $1) services. This area of the market receives little scrutiny and regulation and is rife with manipulation. Your “stock picker” may actually be trading against you by exaggerating the stocks he bought earlier for his own account at much lower prices so that he can sell them at a profit when his subscribers’ buys push up the stock price.
References
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