Trading Stocks: Why so Many Stock Picking Predictions Are so Wrong

I want to know what the future holds as much as the next guy. I diligently check out every stock list I come across. But after 6 or 12 months most of them look pretty bad. A list may sport an occasional winner but many 20 to 60% losers cancel out most of the gains, making it as a good as Wall Street Journal's famous dart board portfolio.

Successful stock trading requires two things:

- The ability to form opinions fast and act on them, and

- The ability to change your opinions fast.

A good trader knows that the market is always right, and that you don't argue with the market. At any point in time you should have a plan based on current assumptions. If circumstances change, so should your plan and assumptions. It applies to stock lists. It's always a good idea to have a current watch list, but if the circumstances change, so should your watch list.

Not so with a published list. Once it's in the public domain, it becomes a tool to rate the predictor's performance. You can't take it back or amend it for fear of being considered wishy-washy. You are expected to stand by your list no matter what. So to defend your opinion (and reputation), you start arguing with the market. The results are usually disastrous as the market does not care what you think, and your opinion does not have any bearing on stock prices.

Each time I see a stock on a list down 20% to 60%, I wonder why anyone would want to hold it so long. Why not sell when it was down 5% or 10%, assuming you bought right? That's why judging a predictor on the basis of a 12-month old list is neither fair nor accurate. What if he sold his losers and rolled the cash into the winners? Or picked new stocks based on new circumstances?

A good list must be dynamic. Who today remembers the early Obama stock portfolios/lists that included stem cell, infrastructure building and alternative energy? If you built your portfolio based on those predictions, the results have been disastrous. Not that it was not a good idea to have one at the time - just in case our "great" president actually delivered on any of his lofty promises - but he did not. That's why to me the biggest value of a list is its timeliness, even if the list changes every week.