Hot Stock Picks - How to See Through the Hype

By Aaron Livingston

If you're a new investor looking to expand your portfolio with some new securities, you might be wondering what all the fuss is about these hot stocks that are all over the internet. These days, everyone from televisions personalities to internet investors is claiming that they have the inside track on the hot stock picks that you've just got to purchase, but it's important not to get caught up in all the hype. While hot stocks do have the potential to make you some money in just a short period of time, they also carry an increased risk.

Just like their name implies, hot stock picks are usually those that are fairly new to the market, very volatile, and poised to make a big increase in price. For investors that are looking to "buy low and sell high," the hot stocks have an allure that is particularly hard to ignore, as they as the stocks that are most likely to make a big jump in value, generating big profits for those that were first in line to buy them. The only problem with these stocks is that their companies are usually untested in the marketplace, meaning that it's not uncommon for them to flop without earning a penny.

Even though you might be caught up in the excitement of hot stock picks, it's important that you don't abandon the principles of both fundamental and technical analysis that have been applied to the other stocks in your portfolio. Technical analysis demands that you spend time analyzing the way that a stock's price has moved up and down in the market over the past few years, noting any patterns or trends that would indicate that it is growing or declining. If a stock is too new for you to be able to analyze it in the charts, it's probably too risky.

Fundamental analysis demands that you spend time analyzing the way that the company has performed in the past, both financially and politically. Are there signs that this company might be getting new leadership, or that it might merge with another company? These things affect the value of hot stock picks, and can mean that the stock takes a nosedive instead of making you an overnight millionaire. No matter how excited you might get about a certain stock pick, it's important never to abandon common sense and your knowledge of how far you're willing to go for a potential profit.


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