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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Investment warning: The limelight is a dangerous place to shop for your stock portfolio

August 19, 2010 -  Be the first to comment
Posted by: Pat McKeough Filed in: Portfolio Management
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When building your stock portfolio, it’s crucial to follow our advice on 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.

(Downplaying stocks in the broker/public relations limelight is part of our three-part investing program. The other two parts are to invest mainly in well-established, dividend-paying companies and spread your money across the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.)

Stocks in the public-relations limelight can give you a false sense of security

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.

In today's turbulent economy, you need clear, personalized investment guidance more than ever. That's what you get when you become a client of my portfolio management services. When you hire me and my expert staff to manage your investments for you, we employ the same value-investing principles I've followed for my entire career. But hurry, space is limited. Click here to learn more about how you can profit from my portfolio management services.

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

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 stock 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, we think you should aim for investment quality and diversification in your stock portfolio. 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 lead to bargains

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 for longer than they should. When that happens, it can give you the opportunity to add some great bargains to your stock portfolio.

If you have investment-related questions, or if you’d like to ask me about stocks you’re considering buying (or selling), you should join my Inner Circle service. Click here to learn more.

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