Have you been burned by a lousy stock recommendation before?

By Joseph Olatunji

We once talked about stocks as fractions. A 1/16 of a dollar here. A 1/100 of a dollar there. As expected, the fractions became large and complicated. By 2000, we moved from fractions to decimals.

Still, fractions or decimals don’t matter if we lose money.

Early in our careers as traders and investors in the stock market, many of us have followed one stock recommendation after another, resulting in massive losses. Even after gaining tons of experience and having developed our precious winning strategies and policies, these embarrassing investment mistakes continue to stick out like a sore thumb.

Often, these recommendations come from our favorite stock analysts, a stock forecast in the local news, and even our family and friends. Sometimes, we even follow our whims without proper planning and research. The bottom line, we were not able to resist the fear of missing out. But what seemed like a great idea soon turned into real losses.

It turns out learning from our worst stock investments and the experiences of others is a good thing.

Too many ‘great’ stocks on an obscure blog

A financial blog might seem to have all the good stocks, and when you check them out, they all seem to do great, prompting you to make those investments.

For Akanksha Sharma (Sharma, 2018), with only a little knowledge about investing in stocks, and even lesser knowledge about the fundamentals, this approach seemed to be a great way of making decent investments.

A financial markets trader, Akanksha, found a blog online where the adviser seemed to post only excellent stocks. Checking out her previous posts, alongside their charts, also showed they were doing well.

But it all unraveled when she posted about the stock Mangalam Drugs, which had made him much money.

So she made a rookie mistake of buying at its higher margin without proper research and incurred over 50% losses. Later, she discovered that the stocks had already begun to unravel. So she figured she fell for a classic pump-and-dump scam.

A flier and an electronic trading error

Jim Laab’s (Laab, 2019) journey in investing and stocks started with amassing knowledge on CNBC. They do have pretty good analysts and immense digital authority. Jim discovered from a flier that Knight Capital stocks would recover within days. Logically, it seemed like a decent forecast since the stocks had plummeted because of an electronic trading error. Sadly, it never did. The trading error was so significant that it ruined the company, making Jim lose over 75% of an $8,000 trade.

‘Exceptional product’ with a floppy business model

Making a great decision to buy or sell a stock goes beyond assessing the ratings. It is much better to consider everything from the fundamentals, like liquidity ratios, to the business model. But for Samuel Parra, (Parra, 2019)his knowledge and love for the product seemed to be enough to invest in his investments. He was already a regular customer at that casual restaurant chain, COSI and loved everything about their service. So, he thought,’ if their products and services were this good, there’s no way their stocks won’t go higher. Unfortunately, a few weeks later, he read on Stocktwits, that the company announced that they were filing for bankruptcy. He was incredibly shocked that he couldn’t pull out fast enough to sell his stocks.

Much ado about timing the market

For Tammy Alairys (Alairys, 2017) , one of his first ‘short’ trades continues to leave a bad taste in his mouth. He had read a newsletter recommendation to short GreenMountainCoffeeRoasters (GMCR). It seemed like a good idea at the time because everyone had in their kitchen makers of the Keurig coffee machine. So, he sold a bunch of shares short, hoping the stocks drop over time, so he could buy back low and make a profit. He decided that the patent for those Keurig coffee machines was due to expire in a year, which meant everyone else would begin making them. Tammy merely bought into that theory without doing much homework. But, the stock kept rising, and he kept hanging on, waiting for the bad news about the patent expiry. But no one cared, and finally, after he had lost 30% on the trade, he decided to buy back the shares and take the loss. Unfortunately, a day after he did that, Starbucks announced a deal with GMCR to make their coffee available in KCups. So, he didn’t make his trade in time, and the stock went up another 20% before he could unwind his trade resulting in a great loss.

The coffee news’ most ingenious move

Diversification has remarkable benefits even when a genius stock could achieve massive income.

But not for Othmane Sghir. As a young investor, Othmane (Sghir, 2016) had thought it was a genius move to follow the news about a refreshing product set to take over the market. The morning news had stated that the biotech was awaiting FDA approval for a drug already showing incredible promise. According to the news outlet, the FDA approval already seemed like a done deal. So, Othmane sank every penny he had into that stock. It turns out that the company didn’t get the approval, and the stock lost over 80% in value. Of course, if it had worked out, he would have accelerated his income impressively. But it’s better not to sink everything into a mere possibility.

Friendships get in the way sometimes

GW Quest (Quest, 2018) heard that his friend, a budding analyst, was doing well with his portfolio. So, without knowledge of the stock market, he decided to cash in on the opportunity. His friend sent him some recommendations, which Quest confirmed were good deals on YouTube.

So, he took the plunge and invested his savings in the stock. In three weeks, the stock lost over 50% in value thereby losing a couple of grand. Following a series of lessons on the same YouTube, he reassessed the situation and decided to sell the stocks. This was the best move because, within a month, Quest’s entire stock would have become 0. This singular lesson made him prioritize personal research he has since then managed to maintain a 30% gain on his portfolio.

Misleading recommendations from the bank

Venkat Raman (Raman, 2021) isn’t one to trust anybody; having been in the finance industry for years, he seemed to know better. But when he received trade recommendations, which looked like they came from the company he had a trading account with, he did not question the source.

The bank presumably sent recommendations to buy the stock Shivansh Finserv(ISIN: INE728Q01014) at the price of Rs. 11 per share and to hold it for one year to target a suggested Rs.200. They also sent a link alongside to make it convenient. Despite being highly risk-verse and having good trading experience, Venkat took the risk because it seemed like a small price stock. At first, he wanted to buy about 2500 shares of the stock. But luckily, he went lower and settled for 50 stocks of the company. In less than a week, the stock dropped to 0.

Update April 2 2023 by Mathew Auto:

An article discusses the recent success of the Inverse Cramer Tracker ETF, which was launched on March 2 2023 on the Chicago Board Options Exchange. Despite not being founded on Jim Cramer’s financial advice, the fund has generated impressive returns (outperforming the market by 5%) by tracking Cramer’s stock picks and taking an opposite position.

Source:

https://www.quora.com/Which-stock-was-your-worst-investment-and-how-much-did-you-lose-in-it

https://www.quora.com/What-have-been-you-worst-investments-in-the-stock-market-What-did-you-learn

https://www.quora.com/Which-stock-was-your-worst-investment-and-how-much-did-you-lose-in-it

https://www.quora.com/How-much-money-did-you-lose-in-the-stock-market

Bad Stock Recommendations: FAQ

How can I avoid following a bad analyst recommendation?

Check the recommending analyst’s track record before acting. A Buy or a bold price target means little without knowing how often that analyst has actually been right on the stock — which AnaChart shows per analyst, per stock.

Why do some analyst recommendations go so wrong?

Targets can be too bullish, too slow to update, or anchored to a thesis that breaks. The pattern across an analyst’s history is more telling than any single call, and AnaChart preserves that full record.

How do I check an analyst’s accuracy before trusting a call?

Look up the stock on AnaChart, find the analyst, and review their met ratio and performance score before weighting their recommendation.

Related on AnaChart: browse the top performing analysts by sector, and compare platforms in AnaChart vs TipRanks.

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Have you been burned by a lousy stock recommendation before?