Can celebrity tipsters really move stocks?

While so-called “celebrity” tipsters are two a penny at the moment there is an ongoing debate as to whether celebrity tipsters really can move stocks. We see the headlines, we see their comments but what are their performance figures in the longer term. It is also interesting to note that very often we only hear about their success stories and many of their failures are “buried at night”. So, can celebrity tipsters really move stocks?

Number of followers

Whether we are looking at Warren Buffett or perhaps a well-known research analyst at one of the top investment houses, a lot will depend upon how many followers they have. Are they able to get their information into the public domain? Do people actually follow their advice? How is their track record?

Can celebrity tipsters really move stocks?
Are you a follower or a leader when it comes to stock investments?

Where does the advice come from?

When Warren Buffett makes an investment the investment world seems to sit up and listen because generally he will go public on his reasons for picking a particular stock or sector. This then gives his followers the option to follow his advice or perhaps they will disagree with a particular stance or strategy. It is the fact that successful investors such as Warren Buffett tend to go for long-term investments which makes him so popular and can very often magnify his impact on short-term price movements. The trust factor!

If we look at a research analyst from an investment house they will have access to a large client base of wealthy investors. Again, there is potential for well-known research analysts to move markets but sometimes they will be commenting upon stocks with which they have a relationship. That is not to say their advice is not clear, concise and accurate but when you compare a research analyst receiving remuneration from a company to produce research, to the unbiased third-party stance of people such as Warren Buffett, there is a distinct difference.

Type of stock

We have all seen some of the more speculative stocks reacting violently to analyst recommendations to buy or sell – especially those who can get their research into the public domain. Much of this can be down to liquidity issues for the smaller stocks and while a long-term situation may be solid and offer good potential, the short term performance of the share price can be extremely volatile.

This is why some longer term investors will wait until the share price has “steadied” after the initial research has been published and then review the longer term potential. What can be an extremely detailed and accurate review of a company’s potential for the future can turn into a “pump and dump” public relations nightmare.

Ignore the froth

There is no doubt that research from an array of different individuals and investment houses does have a material impact upon share prices in the short and the longer term. Those looking to jump aboard a stock which has been tipped as a buy in order to crystallise a short-term profit may find themselves on the wrong side of price movements. The movement of share prices can be extremely volatile in illiquid stocks and sometimes it can be difficult to buy sufficient stock on the way up and dispose of larger numbers on the way down. This is why the more successful investors will ignore the “froth” after the stock has been tipped, let things settle down and then take a look at the long-term picture.

Day traders may disagree with this view of short-term stock movements after research tips but then again day traders have nerves of steel and are willing to take their chances.

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