Be Your Own New Year Tipster

10th Jan by Mark Simpson

22 comments 2472 reads

Happy New Year!

As we enter 2024, investors start to look forward to what the next year has in store for the markets. This means that one thing is particularly prevalent at this time of year: tips, where market commentators try to predict which stocks will perform best in the coming year. The problem is that the average tipster is terrible at it. When Stockopedia researched the topic in 2020, they found that:

…the annual share tips from a selection of the most popular UK newspapers and specialist investor magazines tend to be inconsistent and underperform the market (the FTSE All-Share).

Journalist Tips

The Stockopedia research focussed on newspapers and investor magazines, where tips are written by journalists. Following the "City Slickers" scandal in 2005, where journalists were buying shares ahead of tips they wrote, the restrictions on journalists owning shares they write about are strict. In many cases, they are prevented from owning any individual shares. For this reason, the writers of share-tipping columns tend to be relatively inexperienced market participants who are paid for the quality of their story-telling rather than the correctness of their analysis. It is little wonder that these tips tend to underperform the market.

As well as the quality of tips, investors need to consider the sheer quantity, too. For example, take the Midas Column in the Mail on Sunday/This is Money. Typically, this tips two companies each week. So that is roughly 100 UK companies tipped a year. Excluding REITs, Collective Investments and Holding Companies, there are currently 1264 listed UK companies, so this publication alone tips 8% of the UK companies a year. The Telegraph's Questor column appears to be even more prolific, with around 20 tips published per month. That is 19% of UK companies tipped each year! When you add in other major newspapers and specialist publications, it is certainly possible that over 50% of UK stocks are tipped each year. When the majority of UK stocks are tipped somewhere each year, underperforming, rather than simply tracking the market, takes some feat of (negative) skill!

It is certainly possible that not every tipster is equal, and some have skill at stock-picking, whereas most do not. For example, the 2020 Stockopedia study showed that the Investors Chronicle tips beat the FTSE All Share five out of seven years:

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Wolf of Small Street

10th Jan

The Telegraph's Questor column appears to be even more prolific, with around 20 tips published per month. That is 19% of UK companies tipped each year! When you add in other major newspapers and specialist publications, it is certainly possible that over 50% of UK stocks are tipped each year. When the majority of UK stocks are tipped somewhere each year, underperforming, rather than simply tracking the market, takes some feat of (negative) skill!

Thats an amazing stat and does show the majority are just going through the motions. Be interesting to know if it's their picks which are hopeless or timing. I suspect their timing is probably even worse.

About as useful as their macro predictions. Was deleting some screenshots yesterday when I can across this gem from Bloomberg, Oct 2022. Not even going for a 99% chance, went all in on 100%. Garbage clickbait.

Epitychia

Very true. The macro forecasts are usually very wrong, an individual share tip is even harder to get right. Unless you are Buffett, diversify.

yiannos1

It is my opinion that share tipsters are there to help you learn more about their mentioned companies and that’s where their job starts and ends. They all do an excellent job on the information they provide-an amazing job!

John LA

Very illuminating, I often use the tips for further Stockpedia screening. Thank you for the analysis

Interesting that the left leaning Guardian has the worst record!

DavidMcCabe

They don't actually do tips, so not sure where this data is from.

ken mitchell

These newspaper tipsters are journalists mainly and not investment experts. So presumably they are often relying on information and opinions from Brokers when tipping shares. Also a lot of those journalists are young and starting out on this investment game.

e.g the excellent David Brenchley in the Times and Sunday Times freely admits to this but he’s learning very fast. Yet he has been pilloried in reader comments just because he admitted his lack of experience. Holly Mead is Deputy Money Editor in Sunday Times and admits only recently to have made her first serious investments. And what investment skills has “The Tipster”Lucy Tobin again in the Sunday Times got? Her reasoning is good but again surely based on broker information?

There’s far far superior comment on Stockopedia and sites like Citywire (for Investment Trusts particularly). Competent experienced investors who have learned from many mistakes and mishaps over the years, like many of the posters here, are far better formed than the newspaper tipsters who too many investors take too seriously.

To give a specific example; Michael Walters, the most decent and genuine person we could wish to meet or know, ran a small tipping website until the end of last year, before he at last retired at the age of 83.. He was an excellent Daily Mail Deputy City Editor and earned a great reputation for tipping shares thanks especially to some huge tech winners in the Tech bubble in 1999. His columns were excellent too, so many of his subscribers hung on his every word. Trouble was he was a sucker for blue sky/story shares that nearly anll went wrong, and never got beyond the “story” stage when tipping shares. Proper financial analysis as done by the likes of Paul Scott and Graham Neary here, was never attempted.

Lucky dip

Tipsters

It would be interesting to see what is the outcome of shares discussed at Mello BASH (Buy, Avoid, Sell or Hold ).

we have had a few disasters here, BOTB, BOHOO, SAGA to mention just three.

Silverback01

Mark, your analysis on the pitfalls of following market tips is enlightening. It underscores the importance of independent research and aligning investment choices with one's own risk tolerance and investment style. The idea of creating personal tips using tools like Stockopedia's screens is a more prudent approach, encouraging investors to take ownership of their decisions rather than relying on the often speculative and biased recommendations of others. This self-driven strategy not only fosters a deeper understanding of one's investments but also aligns more closely with individual financial goals and market perspectives

PitBullCH

Aren't the Guardian and Money Observer that same thing - i.e. Observer is effectively the Sunday Guardian - with identical results I suspect it's the same tipster.

Shares Magazine I get free via my AJ Bell / YouInvest SIPP - sometimes useful reading for ideas / themes but like the IC well known to be useless for tips.

ISAallowance

Well they certainly used to:

https://www.theguardian.com/bu...

Maybe they stopped because they were so bad at it!

derekwhogg

The Observer on a Sunday (which is owned by Guardian Newspapers) and Money Observer aren’t connected other than sharing a name. MO is a monthly magazine which I used to subscribe to some years ago and I think it may be connected to Interactive Investor. So the same performance as the Guardian newspaper must just be coincidence. I am a long-time subscriber to the digital edition of the Guardian, and I can’t recall any share tips, so I am a bit puzzled about that.

Rusty2

The figures were based on New Year tips: The Guardian (2014-2019).

Martin VT

11th Jan

Touching degree of humility from the ever so pompous and woke Bloomberg…as we used to say in yesteryear’s more environmentally conscious times, “today’s newspaper headline, is tomorrow’s fish and chip wrapping’”.

When researching companies I can get distracted skipping through IC recommendations over time in a company…particularly where a company’s doubling or more in price has been accompanied all the way by repeated ‘Hold’ advice

One of the things I have wondered about is how the outcome for my largest holdings compared to my smaller holdings. I am going to monitor the outcome this year, and see if my weightings add value or whether I would have been better off with an equal weight portfolio.

AJB

It would also be great if a notification could be given when a share gets newly promoted to a screen. I have half a dozen screens - it's impossible to monitor new entrants without comparing to a screenshot from the last time you checked.

Yes good idea, I agree it is difficult to monitor them. Even with a small number of stocks, on a screen, could be 11 yesterday but then 13 today, but 3 maybe new and one has dropped off. One way is to save the screen or take a screen shot, everyday.

Mark Simpson

12th Jan

This would be a very valuable exercise that may give significant insight into how you invest. However, it may take quite a bit of data to be sure of the impact. Typically, larger holdings should be the less risky stocks. One could easily have a run of good luck where high-risk stocks that are the smaller positions do well and the larger ones lag. This can lead to the conclusion that equal weight is the way to go. However, when you switch to equal weight, this could mean a significant weighting to riskier stocks and sooner or later, that may come back to bite you. You could also track an equal-weight portfolio alongside your real one and see which has the highest Sharpe Ratio, which may give a better idea of whether you would be trading performance for higher volatility or tail risk.

It also depends on the number of holdings. Someone holding 20 stocks should probably be weighting them based on risk-reward. After all, they are already making a big call that these 20 are the best ideas in the market. However, for someone with 100 stocks, then equal weight probably makes more sense.

intuitive6191

The 2020 Stockopedia article concluded .....

The highest hit rates were achieved by The Times and Investors Chronicle, both of which beat the index in 5 out of 7 years.TheTimes achieved the strongest average performance over time, with an average gain to date (end of October 2020) of 20.86% - an impressive performance. The Times also achieved the best one-year performance, with a 126.03% return in 2014.

You wouldnt have picked this up from the tone of this article.

Be your own New Year tipster

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Mark Simpson

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