Wouldn’t it be nice if someone told you exactly which stocks to buy at exactly the right times? You would be able to sit back, relax, and watch your portfolio grow on autopilot.
That’s exactly what stock picking services are for. Of course, you need to choose a company with a reputable track record.
Choose the right service, and you can beat the market; choose the wrong service, and you can end up losing money. Most stock picking services use aggressive marketing tactics that make it difficult to determine whether or not they are legitimate.
You’ve probably seen stock-picking services claim that they found “the next Amazon” or a stock that is going to “disrupt the industry.” What do you do? You don’t want to miss out on a life-changing investment opportunity, but you also don’t want to be a sucker for a marketing gimmick.
In a lot of cases, you only discover how effective (or ineffective) a service is after you’ve signed up. Learning from experience can cost you a lot of money. You probably don’t have the time or capital to test dozens of stock picking services to see which companies can actually follow through on their bold claims.
That’s where we come in…
Our goal is to help traders and investors make informed financial decisions before they commit to a service. Our team provides in-depth reviews on top trading and investment services so you can do your research and find the best stocks to invest in. We have tested over 200 different financial services, and we’re going to show you which ones can actually back up their bold claims.
Keep reading to learn more about what you should look for when searching for the best stock picking services. We’re going to show you our #1 rated stock picking service, but first, let’s look at what you should expect from these types of services.
What is a Stock Picking Service?
A stock picking service is designed to help investors identify exceptional stocks that will outperform the market.
These services help beginner investors achieve the same returns as financial gurus and Wall Street hotshots.
There’s a lot of debate about whether or not it’s possible to beat the market. Plenty of studies show that the majority of funds do NOT outperform the S&P500, but many individual investors would beg to disagree.
Let’s get one thing straight – it is 100% possible to beat the market. Here is an example of a service that has been beating the market for almost two decades:
Consider an anecdotal example. From 2013 (after the release of the iPhone 5) to 2018, Apple’s stock (AAPL) offered returns of over 300%. During that same five-year period, the S&P 500 returned 100%, meaning Apple outperformed the broader market by 3X.
A $10,000 investment in Apple in 2013 would have grown to $40,000 by 2018, whereas the same investment in an S&P fund would have grown to $20,000. Both returns are great, but I think we would all prefer the extra $20,000 in our portfolios.
Of course, everything is much clearer in hindsight, but it wouldn’t take a rocket scientist to recognize that Apple was set up for success. During that same period, Netflix ran close to 1000%, and Amazon ran close to 700%. Even in 2013, these weren’t small, under-the-radar companies. They were top global brands that were set up for explosive growth.
The point here is simple. Individual stocks can outperform the broader market, which means stock picking services have the potential to deliver exceptional returns.
Best Stock Picking Services
By this point, you’re probably wondering which companies can help you achieve these exceptional returns.
We do in-depth analyses of every company we review. We’ve reviewed over 200 different financial services, and every company goes through a rigorous screening process. As of today, these are our top picks.
Best for Self-Directed Research Tools: MarketSmith
IBD’s MarketSmith is a platform built around the investment strategies of renowned investor William O’Neil. This service is ideal for self-directed investors who want help generating ideas. IBD provides great research for investors who like to take a more hands-on approach to investing. Read our full review here.
What to Expect from a Stock Picking Service
You need to have proper expectations before signing up for a stock picking service. These services do not sell results; they sell advice and recommendations. This is an important distinction to be aware of. If you sign up for a service thinking you just found your shortcut to life-changing wealth, you probably have the wrong expectations. There are never any guarantees in investing. Be reasonable with your expectations.
If you want to learn more about the factors we considered in our review, keep reading.
General Market Conditions
The majority of stocks move with the broader markets. This means that if the S&P 500 is going up, individual stocks are more likely to go up as well. In strong bull markets, every stock picker can be a winner. It’s much easier to pick stocks when market conditions are favorable. The true test of a company’s performance is how well their picks hold up in less favorable conditions (i.e., bear markets). This leads to two considerations.
- Look for a longer track record when choosing a stock picking service. A company that did well in the last five years of bullish activity may crumble under the weight of a future bear market.
- Be conscious of the market environment when building your portfolio. You will achieve different results if you buy during corrections, dips, bear markets, bull markets, and new market highs. It’s difficult to predict, but you should be aware of the market environment at the very least.
Stock picking services have a few ways of touting their performance. Some will focus on cumulative performance, while others will zone in on a few good picks. Both approaches are unrealistic.
Cumulative performance is an average of all of a company’s picks. This means that a company can achieve great results and have a lot of losing recommendations. For example, a company could beat the S&P 500 with a 50% win rate on their stock picks. This creates a wide margin of error, as certain subscribers may have followed the 50% of picks that resulted in a loss.
Selective performance can be just as deceptive. This is where a company promotes specific stock picks they’ve made over the years. For example, a company may promote the fact that they recommended Google ten years ago. While this pick would undoubtedly yield a nice return, it’s not necessarily indicative of the stock picking service’s true performance. A single pick could be an outlier, and past performance is never indicative of future returns.
Over the past ten years, you could have placed an infinite combination of trades on any stock. Some of these trades would be wildly profitable, and others would result in catastrophic losses. Take AAPL, for example. In the past 12 months, you could have made 40% or lost 40%, depending on your entry.
A quality stock pick requires a timeframe. When choosing a stock picking service, make sure their timeframes line up with yours. Investors who are approaching retirement will have different investment timeframes than those who are much younger.
It’s important to remember that signing up for a stock picking service doesn’t excuse you from your responsibility to manage risk. Every investor has a different risk threshold, so it’s important to have a risk management plan tailored to your personal needs. While a young investor may be able to stomach a 20% portfolio drop, an investor approaching retirement may not.
Make sure you have an effective risk management strategy that you will apply to your investments. This may mean you cut losses early, take smaller positions, or avoid volatile stocks. There’s no perfect strategy. You will never be able to control the markets, but you should be able to devise a risk management strategy that enables you to feel in control of your portfolio.
Different Types of Stock Picking Services
There are a few different types of stock picking services. It’s important that you choose the one that meets your needs if you want to get your money’s worth. Here are a few common types.
Research Platforms (Hands-On)
Many stock picking services take the form of research platforms. These services don’t directly tell you when to buy and sell a stock, but they provide you with unique tools to help you uncover opportunities. For example, a software company may offer a scan that finds unique opportunities based on proprietary criteria. You may be able to run a market scan for stocks that:
- Are in an uptrend
- Are beating the market
- Have high quarterly profit growth
- Have above average analyst recommendations
In a way, these research platforms are still self-directed, but they provide traders and investors with tools that make stock selection easier. Here are some examples:
Finbox.io provides screeners, fair value price estimators, and financial models that help investors find stocks and evaluate opportunities.
IBD’s MarketSmith provides a wide range of scanning filters as well as chart commentary to help investors find hidden gems and identify prime entry points.
GuruFocus provides access to proprietary scanners, guru picks, and market education.
Research platforms are ideal for investors who have a stronger understanding of the markets and are looking for tools to help automate their stock selection process. If you want to be told which stocks to buy and when, you will definitely prefer a hands-off service.
Investment Services (Hands-Off)
Investment services are stock picking services that recommend long-term investments. These services generally provide buy and sell entries, making it easy for subscribers to copy the trades. Generally, these types of services will also provide research for diligent investors. The research explains the rationale behind the stock picks.
Here are some examples:
Motley Fool’s Stock Advisor service provides buy/sell alerts as well as deep research reports on the companies they recommend. You can also check out Rule Breakers and Everlasting Portfolio for more stock picks from the Motley Fool team (although we prefer Stock Advisor).
IBD’s Leaderboard serves as a hands-off version of MarketSmith, providing subscribers with buy/sell recommendations, annotated charts, and recommended entry/exit prices.
These types of services are best for long-term investors who want to take a hands-off approach to investing.
Red Flags for Stock Picking Services
We mentioned our top-rated stock picking services above, both of which have time-tested track records, affordable pricing, and a credible team. If you choose to sign up for a different service, make sure to avoid these red flags.
Short Track Records
Investing is a long-term endeavor. Most successful investors know that short-term performance is just noise. Stocks can have good months, bad months, good years, and bad years. If you are looking for stock recommendations, make sure they come from an individual or company with a long track record. A stock picker could have a good year followed by multiple bad years. For this reason, we look for stock picking services that have a 10+ year track record (ideally, longer).
Lack of Transparency
Investing is a game of maximizing profits and minimizing losses. Both components are equally important. If a stock picker has a dozen 100% winners and two dozen 50% losers, they don’t have a stellar track record. They may showcase their winners and bury their losers in an effort to attract new clients. For this reason, you should only sign up for stock picking services that provide access to their full track records.
Successful investors recognize that losses are part of the game, and they don’t go out of their way to hide them. Every successful investor has losing positions. If you don’t see any losing positions in a stock picker’s track record, it’s a red flag.
Stock picking services are businesses, and businesses need to market their services. There’s nothing wrong with that. We expect stock picking services to boast about their services in an effort to attract customers. That said, we also expect these businesses to adhere to ethical standards and set the proper expectations for potential customers.
Be cautious of services that overhype their offerings. If it seems too good to be true, it just might be. It’s important to remember that there are no guarantees in the world of investing, and outlier returns are just that – outliers.
As a diligent investor, it is also your responsibility to look past the hype and focus on hard data. For example, Motley Fool is known for their aggressive marketing; however, they back it up with a 20+ year track record. While the company has excellent performance, investors should still maintain rational expectations. Motley Fool consistently beats the stock market by a considerable margin, but the 10,000%+ gains are outlier picks (i.e., Apple, Netflix, etc.)
Financial services can become expensive quickly. Many companies price their services based on what those services may be worth to potential customers (particularly high-end customers). For example, if a stock-picking service has a history of beating the market by 5%, they know that their research is worth a lot to investors with large portfolios. An extra 5% return on a $100,000 portfolio equates to $5,000, so the company could easily charge $2,500 and still have a happy customer. While the customer technically has a positive ROI on the service, they may still be overpaying. A $100/year service may have achieved the same results.
When analyzing a service’s price, consider two things:
- ROI – Will you make more in returns than you pay for the service?
- Alternative Options – Can you achieve similar returns with a more affordable service?