Stock investorBy definition, bulls and bears disagree on the market's direction. But the showdown now brewing as the two camps see starkly different scenarios unfolding is unusually intense. Investors, meanwhile, are bombarded by armies of sell-side analysts on TV telling them they can avoid the soaring uncertainty by picking the right stocks.

The pitch: getting the outlooks for specific companies right can provide investors' cover from bigger lurches.

And while there's no shortage of analysts claiming to know what the future of a company looks like as second-quarter earnings season continues, investors should take their recommendations with a big grain of salt.

Harder to Discern Specific Company Merits

Whether investors can outwit the broader market over the long run is a perennial, hotly debated, topic. But as computerized trading and virtual baskets of stocks make up an ever-increasing portion of the market, getting the fortunes of specific companies right may matter less than it ever did.

The increasingly haphazard nature of the stock market is vexing big-name professional investors, too. "The fact that index [exchange traded funds] have become such a significant portion of total trading activity suggests to us that most [high-frequency trading] strategies are either short-term directional bets on the overall market or inter-sector arbitrage bets, as opposed to efforts to discern the relative merits of one individual security versus another," David E. Nelson, a senior vice president and portfolio manager at high-profile investment firm Legg Mason Capital Management, wrote in a note to clients earlier this month.

Indeed, high-frequency trading jolted into the spotlight in May when trades gone wrong caused the Dow Jones to drop a stomach-churning 1,000 points in a matter of minutes. But behind the scenes, the growth in computerized trading is making stocks trade in lockstep more than ever, thereby minimizing whatever ability fund managers had to pick the right ones to begin with.

Challenging Environment

"This trend is consistent with our view that stocks are becoming increasingly commoditized and helps explain why the movements of individual stocks are near all-time high correlation levels of 80%," Nelson wrote in an unusually candid letter to investors. "We find this environment a challenging one as we try to make fundamental judgments about the relative attractiveness of individual securities."

Analysts paid to follow specific companies continue push things like their stock-price targets with near-scientific precision, of course. But investors should note that the market these analysts are depending on to come to fruition resembles a roulette wheel that never really stops on a winning number.

Increase your money and finance knowledge from home

Reading a Stock Quote

Learn to read the ingredients of a stock.

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Picking Stocks:
It sure is mind boggling, after many many years, I work on 10 best of the best picks, then its down to the best of four stocks. These must have excellent potentual with the highest percentage of gain in BOTH short & long term.
This year my best pick is AZM on the Canada Exchange - TSX.COM or Azimut Exploration, just starting two large projects, with three other ones later this summer. Shares are low, about 26 million, at a price of .65 - .68 cents per. Its my belief these shares will double in 3-6 months, or a possible buy-out before all this work is completed. These shares did trade at 5 dollars 2 years ago. Do your due dilligences, and enjoy the coming ride.

August 01 2010 at 9:17 PM Report abuse rate up rate down Reply

it's harder because The Fed is printing and diluting our dollar.
and they are manipulating stock prices, gold prices and interest rates.
they need to be audited and ended.

July 29 2010 at 8:09 PM Report abuse rate up rate down Reply

I see the as%$^%*&^*&^&& on wall street are still at it. Filling their pockets and royaly screwing the American public. I don't see how these dirtbags can live with themselves.

July 29 2010 at 4:50 PM Report abuse rate up rate down Reply

Picking individual stocks is OK for a small portion of the average "Joe's" portfolio. However, considering the big picture, your much better off having the bulk of one's portfolio in broad based ETFs or index funds. No one can out-smart the market consistently, including all these Wall Street gurus and "wise guys." This is certainly not a task for the faint hearted or the average investor who is not into day-trading and bouncing in and out of the market everyday on every piece of BS news that is out there. This would personally make me nuts. And, all these investment tools being offered to these "traders" by online brokers become a blur and bit bewildering except for a small fraction the investing public. Who has patience for all these charts and graphs? Who wants to sit in front of a computer screen all day, unless this is your business and you actually get paid for it? There is a big fundamental difference between long-term "investing" and day-trading. The later isn't much different than Las Vegas to me. At least I'd have more fun in Vegas.

July 29 2010 at 2:08 PM Report abuse rate up rate down Reply

That is just a load of crap....if anything it is system overload with all the electronic information available, it takes more time to sort through it all but the basic aspects of investing still rely on understanding and then acting on the fundamentals of the market.....if you want to make any money. Daytrading is something altogether different, and yet people still lump it together with long term investing as you obviously have.

July 29 2010 at 11:48 AM Report abuse +1 rate up rate down Reply

The market is rigged by a whole slew of programmed trading. Don't jump in. Very few will score. It's best to invest your money elsewhere.

July 29 2010 at 11:48 AM Report abuse rate up rate down Reply

no kidding vishesh. when there are no fundamentals, there is no workable method
to analyze a stock. the market moves on whims, news, whether it is news or not,
rumors and world events. bp a good example. sell at 45, buy at 26? who knows
when the stock could go back to 65 or turn in to just a worthless piece of paper.

actually not a good example because too extreme. think of others that bounce
up and down without any fundamental meaningful reason.

July 29 2010 at 10:48 AM Report abuse rate up rate down Reply