I did an experiment with analysts recommendations. How to analyze the results?

Question

About 1.5 months ago, I saw a web ad saying something like "click here to see 7 stocks that are going to rise in the following 30 days". I thought it was spam, but the name "Zacks" sounded familiar, so I decided to try the recommendation on a virtual account. I opened an account on MarketWatch, received virtual $100K and spent 1/7 of the sum on each of these stocks. Now, after 43 days, my virtual portfolio looks like this - the $100K became $95K.
Is there any conclusion I can draw out of this experiment? Is it never to trust analysts that promise that certain stocks are going to rise? Or maybe I should just wait longer?

Victor · Accepted Answer

Out of your seven recommendations one is up 14%, one up 6%, four are either even or down slightly and one is down a whopping 40%.

This reminds me of a recommendation earlier in the year provided by The Motley Fool to buy XRO.AX when it was around the $40 mark. I had a quick look at it and thought "gee there is no way I am buying those shares". Now they are just below $15. See the chart below:

You have just learnt a valuable lesson by testing these recommendations without your real money - never trust investment recommendations from analysts (or anyone else). Get yourself educated so you understand what analysts are talking about and you can make a decision for yourself. Better still learn about technical analysis so you can decide for yourself whether it is the right time to buy or sell.

mhoran_psprep · Answer

What you found is that when your were on website X on day y when you clicked on the link they told you to buy 7 stocks and you performed an experiment, but the values went down. Somebody else on website A on day B saw a lightly different list, they may have been flat. But if you were on website W on day D that list hit the jackpot.

Which of the three decided that the people running the ad knew what they were talking about?

They could have tailored the list based on the nature of the website. Sports and recreation ones on ESPN, high tech on a computer focus site. They could have varied the size of the lit, they could have varied the way they described their analysis. They could have even varied the name of the expert to make it sound familiar or authoritative.

What you found was a marketing plan. It may have been a scam, or it may have been just a way to try and convince you they know what they were doing. If you clicked on the wrong list, they probably lost you as a potential customer, unless you can convince yourself that they were close, and deserve a second look....

keshlam · Answer

If anyone could reliably pick winners, they could make more money by investing in those winners than by selling their advice.

Generally, when someone sends you unsolicited hype about stocks, that's because they're trying to pump the price up so they can dump their own shares before it collapses again.

Also note that, these days, it's remarkably easy to run the scam where you sell half your customers buy advice and the other half sell advice on the same stock. Each time, some of the customers drop out in disgust (half, minus whoever decides to give you another chance) and the rest pay you for the next iteration. You can make a lot of money before you run out of suckers. That, all by itself, is good reason to be skeptical about anyone who doesn't publish their full history so it can be audited for such shenanigans.

I did an experiment with analysts recommendations. How to analyze the results?

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