I received a thing in the
mail the other day called
the "Hot Stocks Review."
Phrases like "may even double
again in the next twelve
months," and "could have
you crowing all the way
to the bank" riveted my
greedy eyes. Never one to
pass up great investment
opportunities, I decided
to look into these "Hot
Stocks." The blurb gave
an 800 number to call for
more information, but I
prefer to do my own research.
The first thing I did was
check my VectorVest database.
Only two of the 29 stocks
recommended by the "Hot
Stocks Review" were covered
by VectorVest. This was
not too surprising since
only eight of the 29 stocks
are traded on American exchanges.
Both of the stocks covered
by VectorVest had a below
average Safety rating. Neither
had a Buy recommendation.
Neither of these stocks
were covered by Value Line,
so I checked Standard &
Poor’s Stock Guide which
covers more than 7,600 stocks.
Only one stock was found
in this document. It was
not ranked in terms of
earnings and dividend quality.
Obviously, if one were to
invest in any of these stocks
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they would have to believe
the promotional material
touting the stocks, or use
the information sent by
the companies. There are
two problems here. First,
it takes a lot of time and
effort to analyze a company’s
financial statement, and
I wasn’t sure I wanted to
do this even for the eight
stocks traded on NASDAQ.
Secondly, the investment
caveats cited in company
literature and prospectuses
are designed to protect
the seller not the buyer.
Of course, the publication
featuring the "Hot Stocks
Review" included the usual
disclaimers that "all investments
carry risks," and made it
clear that "the publisher
nor anyone else involved
would be liable for any
investment decision resulting
from their recommendations."
That’s fine, but how does
one get a handle on finding
out how risky a stock is
any way?
Risk
has two parts:
1. The probability
of an unfavorable
outcome |
| and |
| 2.
The consequences derived
from that unfavorable
outcome |
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