Why Are Professionals so Eager to Share Their Stock Picks for Free?

If their stock picks are so profitable, wouldn't you think they'd keep them close to their chest or at least charge for them? Yet each time you turn around someone is touting their favorite pick in the media. I am not talking about anonymous pumpers on Yahoo message boards; I am talking about respectable money managers going on CNBC to share with the world what they like at the moment.

The answer is in the old Wall Street saying that stocks can fall of their own weight but have to be put up.

A stock picker in the pure sense is a trader who buys a stock that is going up, getting a free ride with his timely action. Not so with portfolio managers and institutional investors. They may call themselves stock pickers but they are not. You can't manage a multi-billion dollar portfolio by picking stocks that you expect to go up. Too much risk. No, you buy stocks that you can put up.

There are different methods to put up a stock, some perfectly legal, some not so. Here, again, as they say on Wall Street, price is the best advertiser. When the price is going up, people notice and follow. They and the media may be curious as to why, and there will always be plenty of post-factum explanations to go round, but buying simply begets more buying. There are other methods too: analyst recommendations and upgrades, company press releases and favorable media coverage, including third party articles and interviews with top company executives.

A money manager will never go on TV to tell you what he is going to buy next. He may say what he likes at the moment but that means that he is promoting a stock he owns. So the free talk is part of a strategy of putting up the stock.

If the stock continues to go up, you may profit from buying it on the free recommendation. If it has already met the promoter's price target, the promoter is encouraging you to buy so that he can sell. Or he may simply be applying the tricks of the trade without much success and his pick will go nowhere despite his efforts. The bottom line is: you never know. The only way to find out is to look at the chart. If the stock has just broken out of a sound base, chances are there is more upside. If it is extended, you may become a bag holder. If it's a dud, it may just remain a dud.