Last Thursday, Wall Street expert analysts gave Amazon stock a downgrade based upon lower than expected earnings. Yet the very next day, Friday, Amazon announced higher than expected earnings and the stock price jumped $20 per share. A small play moving just 100 shares of stock would have put a $2000 profit into the overnight swing trader’s portfolio.
Most stock investments are singles, with the occasional double once per month or so. But sticking with the baseball analogy, betting on Amazon on Friday would have been a home run. Yet experts were sure Amazon would be a bust. So are those experts idiots?
The problem happens when you start using “expert analysis” in lieu of your own research. The experts may have a hidden agenda, or they may be working off flawed data (as it seems the Amazon prognosticators were doing) or they may just be lazy. Which means as a stock investor you can’t be lazy. That’s the problem with the vast majority of American investors. They get lazy and turn control of their portfolios over to misinformed analysts and stock brokers who know just enough to be dangerous with other people’s money.
So how can you predict a run like Amazon experienced on Friday? It’s easy. Just read the news and select your stock strategy accordingly. The long awaited and much heralded release of Windows 7 was a boon for Microsoft stock on Thursday and Friday. Amazon and Microsoft lifted the NASDAQ so tech stocks overall ended the week higher last week. Could you have predicted that Microsoft stock would increase? Based on the hype surrounding the release of Windows, the answer is yes, you could. And if you could predict that, then you could predict another winner.
Should you ignore everything stock analysts say? The question is when is it best to listen to an analyst’s prediction? How about when they’re right? The best time to use an analyst’s opinion is when you combine it with another verifiable news source and your own opinion. I try to use my gut instinct based on twenty years of investing experience, plus what I read in the news and my research into the cyclical nature of the stock market. The market we are in now is very indicative of the tech stock market in the nineties, and my “opinion” is that we’re going to hit a tech run in 2010 with the NASDAQ taking off. Individual stocks will perform even better, but for this prediction to come true, several factors have to occur, such as a full economic recovery in America and IPO’s from a few key companies (FACEBOOK). Those of us in the market back then who placed a bet on MSFT rode it from the 20’s up to 68 (where I jumped ship) and some even rode it higher. Or you could use information and make wrong decisions, like mine to sell off most of my Apple holdings at 22, and hanging onto just 100 shares for this ride into the 200 territory. I wasn’t using the news then, just someone else’s judgment, which left a sour taste in my mouth about analyst’s expert opinions. The lesson you need to take away is to do your own homework and ignore what the experts predict. They’re wrong almost every day.
Instead, create your own analysis tools that involves alerts regarding the companies you invest in, diversify your portfolio to include a good mix of tech and blue chip stocks, and watch for the companies that will be winners based on current economic climates. For example, as gas prices rebound and slow down the economic recovery of America, energy prices will increase for homeowners. Since people aren’t selling their homes yet, they will pour their dollars into home improvement (perhaps preparing for the housing rebound), and those rehabilitation dollars will go toward energy efficiency, the new buzzword in real estate. Solar panels will go on every rooftop, and will be tied into the grid in an effort to reduce individual electric consumption. So the companies you should be researching for your 2010 investment strategy should be solar panel companies, or the retailers who bring them to the market in an inexpensive affordable fashion. There’s your homework and an investment strategy for your 1Q and 2Q 2010. What you do with it is completely up to you.
