I have never before given stock tips. I don’t believe investors should own individual stocks. You can get the same expected return by owning an index fund tracking the index to which the stock belongs, with much less risk. That’s the magic of diversification.
I don’t have the ability to select stocks likely to go up rather than tank. How would I make my selections? All information about traded stocks is publicly available and broadly disseminated. Millions of traders analyze it every day and set a price for every stock. What could I possibly know that these traders – some of whom have massive resources – have missed?
An ethical issue
There’s another reason I don’t make stock recommendations. I have a loyal following. I suspect some of my readers would rely on my stock picks. If I turned out to be wrong, they would be harmed. I would have trouble living with that outcome.
I know I don’t know. If I pretend I do, and harm others, how would I be different from a charlatan?
My hot tips
Given that logic, you may find it surprising that I’m giving stock tips now. I’ll explain why shortly.
Here are my tips:
Short Constellation Brands (NYSE: STZ)
Buy Alteryx Inc (NYSE: AYX). Don’t wait for a pullback.
Buy Walker & Dunlop (NYSE WD)
Buy Kratos Defense & Security Solutions, Inc (NASDAQ: KTOS)
Short Raytheon Company (NYSE:RTN)
Buy Johnson Controls International PLC (JCI).
Short Nektar Therapeutics (NASDAQ: NKTR)
Why these picks?
My recommendations weren’t randomly selected.
The are the exact OPPOSITE of recommendations made by Jim Cramer on a recent “lightening round.”
Neither Cramer nor I have the ability or expertise to select stock “winners.” I admit my lack of skill.
Cramer shamelessly touts his, despite overwhelming evidence to the contrary.
Cramer’s faux “expertise.”
Respected financial journalist Allan Roth looked at four stock calls from Cramer and concluded they were “telling of Cramer’s incredibly poor ability to call stock sells.” He also discussed a strategy of doing the opposite of what Cramer recommends. I used that idea in making my stock recommendations.
Larry Swedroe reviewed Cramer’s track record in this blog post, relying on peer-reviewed studies. The findings were not impressive.
One column from Barron’s “studied 1,300 recommendations and found, over the prior two years, investors holding Cramer’s stock picks “would have been up 12%, while the Dow Jones industrial average rose 22% and the S&P 500 Index rose 16%.”
Personal finance author, Eric Tyson, called Cramer’s advice on investment bank stocks (a sector you would think he would know something about) “horrible.”
Tyler Durden at ZeroHedge, looked at Cramer’s stock picks starting on January 1, 2011 for a two-year time period. On average, his recommended stocks underperformed the S&P 500 index by a whopping 568 basis points on an annualized basis.
Durden gave Cramer an “F” grade.
It’s possible my recommendations will best Cramer’s. It’s equally likely they won’t.
Neither of us should be making these recommendations because we don’t have a clue whether we will be right or wrong.
The difference between us is I have a conscience and Cramer doesn’t, so his charade – fueled by advertising revenue from brokers – goes on.
Don’t fall for it. Limit your investments to a globally diversified portfolio of low management fee index funds.
Don’t follow my stock picks or (worse still!) Cramer’s.
Resource of the Week
I highly recommended this blog post by Allan Roth. He takes a statistical look at Cramer’s skill level.