When building your portfolio, it’s crucial to follow our stock investing advice of downplaying stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage. That’s because, in investing, familiarity can breed excessive feelings of comfort, security and performance.

After all, brokers get information from the media, investment journalists spend a lot of time talking to brokers, and company managers listen to both. A feedback loop can develop that spurs high expectations, derails criticism, and leads companies (and their investors) to make devastating mistakes.

You may get the feeling that these are can’t-miss investments, and that it’s safe to buy and forget them. That’s exactly the wrong thing to do with these stocks. Our stock investing advice is that your in-the-limelight holdings are the ones you need to watch most closely.

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Stocks in the public-relations limelight can fall further and faster than others

Needless to say, lots of smart people work in the public relations and brokerage businesses. Many broker/public relations favourites go up more-or-less steadily for years at a time. But when they come down, they take a lot of people by surprise, and they can fall much further than you ever thought possible.

That’s why it’s a mistake to stuff your portfolio full of them. A high corporate profile may provide investors with a feeling of security, but it doesn’t pay them any dividends. Instead, in-the-limelight stocks trade at a premium.

Instead of familiarity, our stock investing advice is that you should aim for investment quality and diversification. At any given time, lots of prosperous, well-established companies are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight.

Negative publicity can conceal valuable assets

Note that the broker/public relations limelight works two ways. When brokers and the media turn negative on an investment, they can ignore hidden value and stay negative far longer than they should. Some great bargains can materialize as a result. This could be the case with Torstar (symbol TS.B on Toronto), a stock we cover in our Canadian Wealth Advisor newsletter.

Torstar has long gotten the kind of attention that often goes to stocks and industries seemingly on the brink of collapse. But, aside from the Toronto Star newspaper, the company owns Harlequin Enterprises Ltd., the world’s leading publisher of romance-fiction books, which saw a revenue increase in the latest quarter.

The recession continues to weigh on Torstar’s advertising revenue, but lower newsprint prices should help the company. In the most recent quarter, newsprint prices were 40% lower than they were a year ago. As well, Torstar has managed its costs well: the company has made a significant cut to its workforce over the past year, and is further lowering its expenses by offering voluntary buyouts to its remaining workers. Meanwhile, the stock yields 5.7%.

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