It's one of the biggest problems/drawbacks that newsletter writers and their subscribers face...
“The Herd Mentality” can work against you as well as for you.
If the writer has a good following (especially if the writer has a good following) then he or she has given an advance signal of intent to to the market. The Market Makers adjust their prices/spreads anticipating a rush through the entrance or exit door.
You can't rely totally on the skills of newsletter writers no matter how good they may be, because they are distorting events. It's like Warren Buffett signalling on Friday his intent to to acquire or dump a stock on Monday morning.
It's also almost impossible to match the performance figures that the newsletter tells you it has achieved (getting in that low, or get out high), and for the most part they do nothing to dispel that illusion.
The stock jumped up 10-15% or more after you read about it. Without any news from the company the fundamentals are still the same as the time before you read about the tip. Without good news the price usually falls back to around the price it was tipped at. Wait a while for the furore to die down and decide if you're still interested.
If the newsletter writer has any pulling power......
Waiting/Investing when the SP is below the recommendation price is often a very good policy (assuming no bad news or change of heart), as the newsletter writer will pull every trick to get the SP above the recommendation level. This is particularly the case if the newsletter has associations with other publications/organisations (they'll be encouraged to tip that stock too), or through their TV work/media work etc.
If you got caught on the wrong side of a sell recommendation then the reverse is true (even dead cats bounce if they fall far enough). Markets invariably over react to both good and bad news. Remember bad news hangs long in the memory so don't get lulled into believing that a bounce is a signal to keep hold of that position (the hope of recouping losses).
Nothing wrong with taking profits.
Nothing wrong with accepting losses before the loss becomes meaningful.
Even if that decision turns out to be premature.
“He who fights and runs away will live to fight another day.”
It's your money at risk so the first decision, and the final has to be your decision.
ATB
Author