Why taking stock picks from biz journalists is bad

Mark Gimein writes on The Big Money why taking investment advice from business reporters is an unbelievably bad idea.

Gimein writes, “Reporters make bad stock pickers, and I’m no exception. Very rarely have I had the temerity to actually recommend a specific stock. When I have a stock idea, I almost never put it in a story. There is a good reason for this: Usually I am wrong. Why is this the case?

“1. Reporters have a big prejudice toward value investing. Our jobs are to analyze the truth of what’s going on in an institution—whether a corporation or a government agency—and separate it from ‘the hype.’ This means trying to separate out public perception from ‘objective’ results. Reporters don’t like companies whose earnings don’t justify their share price. Surely at some point logic must take hold and the share price will fall, right?

“When it comes to investing in new technologies and ideas, though, the logic of value investing doesn’t hold. Some companies, including, obviously, Apple under Steve Jobs, have been able to repeatedly create strategies and inventions that extend their business in new directions. These companies are what stock pickers like to call the ’10 baggers’ that let investors multiply their money several times over.”

Read more here.