Investors must find out about key things when they decide to buy any service, say experts
Many amongst us have got a variant of this cryptic SMS, "Buy 2,500 XYZ company shares. Big expansion announcement in 15 days. Guaranteed profit of 80% in six months. Foreign institutional investors (FIIs) already buying". Within a few days of this trade, you realise that you have been fooled. Many retail investors are today considering paid stock recommendation services from experts who come with different packages for telling you which 'multi-bagger' stocks to buy for the long-term. DNA Money tells you how you should choose such services.
Nothing is free: Even though equity investments have been consistently outperforming other asset classes, investors in the Indian stock market is around 8.1% of the entire population as per the Sebi Investor Survey Report 2015. This number is minuscule as compared to USA where 43% population is investing in the equities. "Investors have shied away from this asset class even though they have a humongous potential of generating wealth for you. We wanted to reimagine the way people look towards equity investments by educating and empowering them by recommending fundamentally sound stocks for long-term investments," says Manish Goel, founder and MD, Equentis Wealth Advisory Services, which owns 'Research & Ranking' brand.
There is no free lunch and no free stock tip. Investors lose money on free tips, misled by a banker, broker or some other person pretending to be a guru. Not many understand this sordid truth until they burn one's fingers. "I say this because first-time investors are not very excited about the way we go about our research…sensible, long-term. But once they have tried a few other approaches and maybe read a little, they come and try us," says Rahul Goel, CEO of Equitymaster, which launched its first for-subscription newsletter in 2002.
Some investment platforms don't give any paid recommendations but provide analytics support. Tejas Khoday, co-founder and CEO of FYERS says it caters to the "Do It Yourself" trading/investing community who like to make their own decisions. Little to no knowledge about the stock market and the desire to make a quick return on investment with their existing savings is a dangerous thing. "Most people end up trying such services because it seems like the logical thing to do but fail to realise that even if the equity advisor's stock recommendations are correct, execution of the trade matters equivalently," Khoday points out.
Evaluation parameters: There is no definite categorisation, but most paid advice come in form of packages for blue-chips, mid-caps, small-caps, micro-caps and IPOs. There are also some that promise to give 'big ideas' and 'trading opportunities'. Package costs range from Rs 5,000 to even Rs 1 lakh, and mostly come with 15-30 day money-back guarantees.
Equitymaster's Rahul Goel says investors must find out about key things when they decide to buy any service - the idea behind the service, track-record, and process and team. "If you are a conservative investor who believes in India’s long-term potential, then you may want to give the high-risk trading services a miss. Evaluate the track record. Be sure it’s audited. Study what the editor was doing when markets were extremely overvalued or undervalued. Time and again it has been proven that team and process beat a standalone star stock picker, hands down," he adds.
FYERS' Khoday thinks there is only one parameter that should matter - actual performance. "Investors should realise there is only one way to trust an advisor's stock recommendation and that is evidence. If there are untampered documentary evidence of all the recommendations given by the advisor with entry price, targets and stop losses, then his performance can be assessed on merit," he says. Investors to ask equity advisors to produce a real ledger of trades which they have recommended and also traded. A chronological record of success for at least one - two years can give you a hint of whether the recommendations are worth following or not. In trading/investing, research is just part of the equation.
Some think strength and detailing of the research drives the success rate of the portfolio. "Cost of service and other factors should be considered at a secondary level," remarks Manish Goel of Equentis. He says his platform executes over 300 algorithms to create a personalised portfolio of 15-20 'fundamentally sound stocks', and provides Buy/Hold/Exit as required.
USEFUL TIPS
- Investors must find out about key things when they decide to buy any service, say experts
- Most paid advice comes in the form of packages for blue-chips, among others
- Actual performance is the only key parameter
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
 "Paid stock advice")
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}