Stock tips are misleading: Take them with a pinch of salt

Recently India Infoline (IIFL) came up with two different reports advising clients to "sell" and “buy” the same share, Punj Lloyd on the same day! Both the reports were published on 31st May, 2010. The first report advises institutional investors to sell shares of Punj Lloyd, while the second report targeted at its
private client recommends buy for the same share. The full story is covered in MoneyLife.

Money Life contacted IIFL’s VP of Corporate Communication for clarification ….

When contacted, Harshad Apte, India Infoline's vice president for corporate communications, said, "Both these reports are in fact, targeted and sent to two separate set of customers and also both these recommendations are for differing time horizons. One of the recommendations (IIFL Private Client Group) is for the retail clients and carries a shorter time horizon while the other one is meant for institutional clients and is for a longer time horizon."

Well “differing time horizons” is just a lame excuse. In all probability the two reports were prepared by two different people, either of them having any clue about what other is saying. This has to be incompetance or an intentional means of profiting a set of people at expense of other.

So what does a retail investor do when continuously bombarded with misleading recommendations ? I would say- 

• Stop following so-called financial experts/advisors (they come in many names) who dish out hot stock recommendations, tips through business channels, stock sites, magazines, reports etc. Open ended sound bites like “long term bet” (how long is long term?), “cautiously optimistic” (damn! can we be specific? it’s cautious or optimistic) can only add to confusion but not to your corpus.

• Media and so-called experts are there to further their own interest and not yours.  Business channels  are there to increase their TRP which leads to more advertisements, magazines their revenue through increased sales and expert intent to enhance their personal branding. For retails investors there is  no short cut for making money in stock market; everyone has to invest their own time and effort in doing research.

• If you don’t have time or expertise for doing research, outsource that to experienced fund managers by investing in mutual funds instead of direct stock through systematic investment plan.

• Moreover, if you cann’t choose right mutual funds that meets your financial requirements and risk appetite, invest surplus money passively through index funds instead. Over a period of time they will generate good returns.

• Most of all make a financial plan tailor-made for your own financial goals and stick to that. Only discipline, patience and right financial choices can help build a large corpus.

Please send me your comments.