Why You Should Ignore Hot Stock Tips


You’re probably well aware of the incredible run the stock market has been on for several years now. Now entering year nine of its bull run, the S&P 500 has nearly quadrupled since 2009. Since 2013, the S&P 500 has increased by more than 79%! Despite fears that the run may be nearing an end, 2017 was another great year for investors.

If you invested in an index fund tracking the S&P 500 (like this fund from Vanguard), you saw a staggering return of 19.42%! And that doesn’t even factor in returns if you reinvested dividends paid. In that case, you saw a return of 21.83% last year!

Despite these historic returns, investors are still on the hunt for ways to get-rich-quick. And no matter the market conditions, there are always investors who are on a mission to beat the market.” And there are plenty of analysts out there who know just how to do it.

Never mind the fact that a 21% return is an incredible year. And so what if a 21% return means you’ll double your money every 3.5 years! We can do better, right?!

Personally, I’ll take 21.83% any time. And I’ll do it the easy way by pumping my money into low-cost index funds that capture the entire market and give me the market return, whatever that may be.

Not everyone is satisfied with 21.83%, however.

If you want to beat the market, you’re in luck because it isn’t hard to find an analyst or so-called expert who has the scoop on the hottest stocks for the upcoming year. There’s no shortage of talking heads who are willing to try to predict the future. And with thousands of them out there, some of them are bound to get it right and beat the market every now and then.

But the reality is, nobody can predict the future reliably. That’s why most of the time they get it wrong.

Why all the predictions?

The answer is simple. Bold predictions equal ratings, views, clicks, and subscriptions. Financial news isn’t about getting it right. It’s about getting you to pay attention to their articles.

Index investing is boring (and the choice of the wise investor). But it doesn’t attract an audience. Thus, bold silly predictions are abundant.

With that in mind, let’s examine some bold predictions from the start of 2017 and see how they fared.

Putting the Experts to the Test

Here’s an article from CNN Money called 5 Stocks to Buy in 2017. Interestingly, the article’s author acknowledges that online articles featuring stock tips are a dime a dozen. With that being said, the author goes on to explain why these five tips are actually worth paying attention to:

why you should ignore stock tips

So, these are the real experts. If they can’t get it right, then who are we to trust?

Let’s see what they had to say and how their stocks picks did in 2017.

The five five-star analysts featured in the article recommended the following stocks:

  • Broadcom Limited (AVGO)
  • Envision Health Care (EVHC)
  • State Street Corp. (STT)
  • Delta Airlines (DAL)
  • Dycom Industries (DY)

Wondering why you should buy these stocks? Check out the in-depth analysis each stock picker provided:

  • Broadcom is a “key player in wireless technology.”
  • Envision is “in a very strong position to be a dominant player in hospital care.”
  • State Street “continues to trim costs and win more customer assets.”
  • Delta will benefit from “leisure and business travel [that] continues to pick up.”
  • Dycom “will be able to continue its stellar year over year climb in revenues by gaining new clients.”

Yeah, not a lot to go on there, huh?

So, here’s the question: Were these five-star analysts able to beat last year’s return of 21.83% on the S&P 500? Let’s have a look at the results.

Here’s how their stock picks did in 2017:

  • Broadcom Limited (44.03%)
  • Envision Health Care (-45.41%)
  • State Street Corp. (23.95%)
  • Delta Airlines (13.17%)
  • Dycom Industries (36.14%)

There were a couple big winners in there. And one huge loser. If you had bought all five of those stocks on January 1, 2017 and sold on December 31, 2017, you would have seen an overall return of 14.38%. That’s not bad, but it comes up well short the 21.83% you could’ve had if you’d invested in the S&P 500.

If you had invested $10,000 in those five “can’t miss stocks,” you would’ve had $11,438 at end of 2017. Meanwhile, a $10,000 investment in the S&P 500 would be worth $12,183.

I think the winner is clear.

Let’s discuss. Do you listen to the prognosticators? Do you have any stories of success (or failure) from following a stock pick you’ve gotten from a newsletter or online article?

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About the Author:

Hi, I'm Cato! I'm an attorney with a passion for fantasy baseball, burritos, and investing! I also paid off over $86,000 in student loan debt in under four years while aggressively investing for my future. Please subscribe if you want to learn more about mastering your finances so you can live the life you want!


  1. The Luxe Strategist February 22, 2018 at 9:28 pm - Reply

    I used to look up hot stock tips and watch some Jim Cramer clips, but then I thought, by the time these guys are telling me what’s hot, it’s probably too late. Instead, I’ve bought stocks based on whether or not I’m familiar with the company myself, and whether or not I believe in the products (so, mostly consumer goods groups). I only buy what I know. For instance, right now I’m looking at the Canada Goose stock, but none of the talking heads are really saying much about it.

    • Cato
      Cato February 23, 2018 at 11:05 am - Reply

      Once upon a time, I relied on so-called expert stock tips. They produced mixed results, but looking back on those choices I realize it was silly. Overall, I agree with your current approach. I think it’s best to stick to investing in companies that you’re familiar with or are interested in or passionate about. Personally, I don’t have the time, desire, or intelligence to start from scratch when selecting investments. If I have specialized knowledge, I’ll take advantage of that slight edge in the market. Otherwise, I’ll stick to index funds.

      I hadn’t heard of Canada Goose until you mentioned it. I’d definitely be interested to learn more about your approach and what you do when you’re “looking” at a company and considering investing.

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