Most Stock Picks from Newsletters Fail

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Carom Capital, Inc., identifies the key factors that differentiate successful stock pick services from the ones that tend to fail.

Stock picking and investing is perhaps the most challenging endeavor for both novice and expert alike. There are a great many myths about investing and trading that the individual investor has been told over the years from their local banker, mutual fund company, and so called experts on television. Unfortunately, all of this misinformation has made the decisions individuals make trading and investing stocks even more difficult.

As a result of the confusion that is out there, there are dozens of stock picking investment newsletters that try to simplify the process of stock picking. Some are clearly filled with hype claiming 100% and more returns in short periods of time and highlight their stock picks that made enormous gains, but fail to highlight the ones that failed miserably. There are others, however, that do demonstrate credible alternatives to stock picking that can beat the market consistently. So, how does the individual investor make the distinction between those that are not worth the time and others that can prove their worth in gold? Well, in short, it comes down to their stock selection.

Carom Capital, Inc. (, that has its own stock pick newsletter, and the limited few others out there that focus on highly liquid stocks tend to do much better than those that focus on small capitalization, low liquid stocks. Liquid, refers to the number of shares traded daily for an individual stock. Some stocks trade 100 thousand shares a day, others several million.

Why does it matter how many shares a day a stock trades? Well, for one, what most investment newsletters say or they don't realize, is that if the stock pick service has any credibility at all, it should be trading on the same information it provides to its subscribers. However, no company managing any sizeable amount of money can trade on the information it provides to its subscribers unless there is a lot of volume for the stock. Why, well because the buy orders of subscribers will be competing with the company's own buy orders and the company won't be able to get the stock at the recommended price. However, if the stock trades several million shares a day, even a thousand subscribers that buy thousands of shares still won't move a stock trading several million shares a day.

The other reason highly liquid stocks are critical for stock pick newsletters is accuracy. Whatever the indicators the stock pick newsletter uses, some element of it will always involve technical indicators of some kind. At Carom Capital, Inc.(, technical, fundamental and proprietory tools are used to pick stocks. In order for the technical aspect of stock picking to work, there has to be market participation. Market participation means big money traders and investors have to be able to participate in the trade, i.e. have the ability to acquire shares without greatly affecting the stock price, and second, there needs to be able to be a lot of participants because only then will the stock move likely work out.

So next time you read about or consider a stock pick newsletter service, look first at the types of stocks they recommend, if they don't trade millions of shares a day, keep a skeptical eye, you may find a few that work out, but the most important element, consistency, may not be found, and without consistency, you can't make money in the stock market.

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