Performance Track Record Must Be Known Before Accepting Stock Market Investment Advice

By: Gautam Gautam

A platform that rates advisors based on the performance of the advice will make slick marketing less important than results. Your next real expert may be wearing a T-shirt, but you won’t care, as long as he demonstrates a good track record.

In early January 2008, I remember reading research reports, and listening to ‘so-called experts’ on TV talking about their expectations for the Indian stock market in the following year. The predictions that they came up with would sound positively hilarious today. “Sensex 40,000”, “Strong fundamentals”, “India shining”, and “De-coupling” were the phrases these experts used to dismiss their bearish colleagues.

Despite their ridiculous predictions, these ‘experts’ are still followed by retail investors today – who have forgotten how much they’ve already lost because of them. Perhaps it’s because they don’t have much of a choice – everybody seems as good or bad.

The other issue is that brokers are poorly incentivised. They keep pushing out huge volumes of trading calls because they aren’t concerned with their clients profit – they just want more commissions as a result of greater churn.

What’s needed therefore is some sort of platform that measures the quality of advice. For example, every time somebody says that XYZ stock is a ‘buy’ for a 1 year time frame, the platform measures the return and riskiness of the call. By aggregating every call that an individual has made (major losers as well as the multibaggers), it becomes possible to give that person a true rating. The resulting ‘expert’ doesn’t necessarily have to wear a suit and speak in technical jargon. He might wear shorts and a T-shirt, but more importantly has demonstrated measurable track record of providing advice that yields profit.