Lesson Overview

How Bad Are We At Picking Direction?

Looking for the best stock pickers and stock picks? You'll be surprised to find out that some of the biggest investment banks on Wall Street are no better than 50/50. In this video I'll highlight some of the real interesting stats that show how bad each of these firms are at actually picking a stock's future direction. Everyone from Goldman Sachs (considered the premier firm) and JPMorgan Chase to Bank of America, Wells Fargo, BB&T, Deutsche Bank, Jefferies, Jim Cramer, Kiplinger, CreditSuisse, Barclays, Raymond James, Merrill Lynch and SunTrust. This should put the nail in the coffin once and for all that trying to profit directionally with stocks is not a viable trading strategy. Based of a great and free tool from Motley Fool (http://www.fool.com)

Show Video Transcript +

In this video tutorial I want to just walk through how bad the industry is at picking stocks, and really we know that investors are pretty bad stock pickers but let's go through a lot of data here and just show you what the biggest companies on the planet, the biggest investment firms that are out there, and how accurate they actually pick winners.

Again this proves the point that neither you nor I have any clue where the market's going. I used to be in this industry, and it has nothing to do with we talk about here with probabilities, and with odds analysis, and with statistics, it has nothing to do with that.

When you're in the industry, it more has to do with how many research reports do you want to sell? What are your expectations from the company? Then you straight line everything out from there, and it's just a bunch of garbage in my opinion.

I want to show you again what the biggest investment companies out there do, and how accurate they've been as far as picking stocks directionally.

We're going to start off with Goldman, and we're going to run through a bunch of these quick, but I think that Goldman is probably one of the, if not the biggest most premier investment bank on the Street.

They have such influence, such great access to the markets and information and even though they have such great information and such great access, they're accuracy as judged by the fool.com which does a great job of tracking all this, so you guys can go there and check it out.

They're accuracy is just 46.77%, so they're less than 50%. As we go through here, Kiplinger, another big one. A lot of people subscribe to their reports. Accuracy, 40% accuracy. Jim Kramer, no surprise here 44.56% accuracy, just about 50/50.

Raymond James, a little bit better than 50/50, 53.75% accuracy. When we go to Bank of America, a little bit better than 50/50, 50% accuracy. Going to Wells Fargo, 51% accuracy. Going to Credit Swiss, 49% accuracy. Barclay's 49% accuracy. BB&T Capital Markets, my alma mater, 49% accuracy.

JP Morgan 50% right on the dot. Merrill Lynch, one of the best ones at 56, so just above 50/50 but still basically, one every two picks that they make is bad. Suntrust 48%. FBR Capital Markets 48%. Doha Bank 48%. Piper Jaffray's 46% and Jefferies 47%.

Again what's so incredible here and again I just went through just some of the handful of ones that I picked out as far as the bigger better investment banks on the street. And you can see that, in nearly every single case, they were horrible at picking the direction of the market.

You can see their accuracy ratings are right around 50% and again they make hundreds of thousands of predictions on where stocks are going to go and Fool tracks everything, and you don't even need to subscribe to them to know that it's all 50/50.

Again, the point of this video here is that as a community we are horrible picking the direction of a future stock. We are no better than 50/50. When you go in, and you make your trades, it's much more important that you make high probability trades based on statistics that you know a stock won't breach over a long period of time.

A nd that's the way that you beat this market is by making those higher probability trades. Not by picking the direction of the stock. As always I hope you guys enjoyed this and again this was a quick little video but powerful take aways in here.

Please share this video online, on Facebook, on You Tube, on Twitter. Help spread the word about what we're trying to do here at option alpha. As always if you have any comments or questions, please add them right below and until next time, happy trading.

Join 209,817 Options Traders

Membership is always FREE & you can upgrade anytime to unlock software tools.