How to select a stock advisor? Our checklist

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It been tough for equity investors. Market has tanked. Impact is more aggravated at individual stock levels. This is in sharp contrast to 2016 or 2017, where money was easily made over free sms tips or television news channels. Unfortunately, this is the true face of stock market which will keep on popping up at regular intervals. You need a strategy to tackle it otherwise all your gains made during bull years will vanish in thin air. If you don’t have enough time or expertise, it is a wise decision to buy a professional subscription.

Once you decide to approach a professional help, the issue arises in choosing the right stock advisor. If you search on google, you will find tons of websites claiming to be the number one. This further adds confusion. In this article, we discuss a checklist which should be considered before buying subscription of a stock advisory service.

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Factors to consider before buying a subscription

Independent Advisor: Do not fall for famous names which are advisors as well as brokers. All big banks & institutions provide brokerage service alongwith free recommendation services with demat accounts. Stay away from such advisors. Reason, their business model is based on brokerage fee on each transaction, so they will push you into buying & selling at frequent intervals. Trust independent advisors as they have not other business interest apart from making you wealthy.

SEBI Registration: By law, all stock advisors have to be SEBI registered if they are active in stock advisory. As per data from SEBI, there are only 469 bodies registered with SEBI. This includes individuals as well as companies. A simple google search will give you thousands of websites doing this business. This simply means most firms or individuals are not SEBI registered and they face risk of shut down if SEBI decides to crack down on them.

Look beyond past records: Today, most firms have great track record due to recent bull run and thus everyone has great numbers. Don’t get impressed by this. We need to understand how those returns were generated. It could have been achieved by taking a lot of risk. For example, by recommending stocks that were famous and lapped by naive investors despite having poor valuations. You can check past stock names to understand the quality of stocks they have been recommending in the past. If quality of stock is good and past performance is average, there are higher chances of success in long run.

Type of services: Don’t trust advisors who dish out multiple services like candies. You will easily find out by looking at the number of services they are offering. An advisory firm or person running more than three or four services will not do justice to any one of them. Funny enough, all services will claim to recommend only the best stock. Then why will two different services from same provider recommend two different small cap stocks? Is one of them not the best? If there is a best small cap then it should be recommended in one service only. Honestly too many services is a waste of your time and money. Also stay away from service providers who deal in intraday, commodities, options and what not. Short term or intraday advisory was invented by market intermediary or brokers. Short term exists because of lucrative brokerage charges which is levied on each equity transaction irrespective of buy or sell, profit or loss. There is no fundamental logic. It is more of a gamble rather than investment. Nobody can consistently predict short term stock price movements. Mostly they ride on bull market and luck. Stay away from such service providers.

Website Layout: It is a very crude way of filtering out. There are websites which have eye-catching pop-ups, red and blue text, some large and some small texts or images. There is no consistency and do not look professional. If they are not able to focus on their shop (website), how will they focus on stock research. Most of the times, their stock report is as confusing as their website.

Read Free Blogs: Nowadays everyone has a newsletter published on their website. Read and skim through the content quality to understand the depth of service provider. Also look for consistency in views across articles. Articles should have a natural flow and talk logical. You can subscribe to free newsletters and observe it for a while before taking a decision. This is a very simple but very effective way.

Subscription Cost: Cost is an important factor for any purchase. However some people invest in thousands and some folks in lakhs or even crores. So you need to check if subscription cost is worth your money. On an average, equity market will return 13 to 15% per year, so look for breakeven point before jumping to a costly subscription. There is no point in buying a ₹40k per year subscription if you are going to invest only ₹50k. To be on safer side, always calculate subscription breakeven at 15% of cost. For example, for a ₹15k yearly subscription, you have to invest at least ₹1 lakh on a yearly basis.

Don’t get impressed by degrees or experience alone: This is another crucial factor which most investors ignore. While these are important factors but they are not everything. We have seen people with good experience or degrees getting outsmarted by passionate people. Remember how consistently dabbawalas of Mumbai deliver lunchbox which no DHL or Fedex can match. It is passion which drives excellence and will make a difference to your wealth. Also a lot of times, these big names of industry use their brand image to encash money from aam investors, while they focus on large institutional clients only. Even getting to talk to them will be difficult for aam investor. So factor this aspect well into your selection if you will require to be in constant touch with your advisor in future.

This list can be used to evaluate a service provider and you can filter out most junk advisors over internet. At AI, we keep our passion burning to give you best advice at all times. Our Ace readers have been reading and benefiting from AI post. Now, we invite you to have a look at our philosophy and details about our modus operandi by clicking here.

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