Are stock market recommendations really the best way to make money from stock markets?
Well, not really. But many investors strongly believe the best way to make money from the stock market is by investing in share market based on stock market recommendations.
However, beware that not all stock market recommendations are genuine, accurate, or backed by detailed research and analysis. Moreover, some stock market recommendations you receive in email or SMS may even be sent with vested interests.
So when it comes to stock market recommendations, you must tread with caution, especially about the source of information. Remember, ‘All that glitters is not gold.’
Have you heard of Leel Electricals? A few years ago, it was a hot investment stock suggested by many stock market recommendations. In case you haven’t heard about it, Leel Electricals is an electrical component manufacturer who sold the consumer business and Lloyds brand to Havells for Rs 1,600 crores in 2017.
As a result, the company recorded an exceptional gain of Rs 946 Crore in the September 2017 quarter to account for profit on the stake sale. It is what made it a hot investment stock suggested by many stock market recommendations. As a result, many retail investors saw it as a value buy and invested in the stock.
So while the stock market recommendations were right about financial ratios and the company’s future prospects, they overlooked a crucial factor that the management of Leel Electricals had deliberately fudged on the company’s balance sheets.
According to a report by the Economic Times, the new management, which took charge after the demise of the company’s CMD, reversed the gains to the tune of Rs.310 crores in the subsequent March quarter, citing associated costs and expenses. The company also allegedly diverted considerable amounts to other businesses of the promoter as capital expenditure and loans for buying land and factories of their own plants.
So it was a clear case of misappropriation of funds which led the stock to fall from a 52-week high of Rs.250.90 to 17.60, eroding investors’ wealth.
So you see, most stock market recommendations do not consider the whole picture. Instead, feel it like the tip of the iceberg where only 10% of the iceberg is visible on the surface, whereas 90% of the iceberg lies submerged beneath the surface of the ocean. So unless backed by detailed research, stock market recommendations are useless for wealth creation.
Because apart from the right time to enter a stock, it is also essential to know when to exit a stock. For example, there have been numerous cases in the past when ratings of good stocks have changed from ‘Buy’ or ‘Hold’ to ‘Sell’ due to factors like a sudden change in regulations. In such times it is imperative to exit a stock.
One cannot create wealth just by getting stock market recommendations.
Create Wealth: Make your money work while you are asleep.