Don’t Look At The Most Popular Stocks List


The types of articles I absolutely hate seeing go along the lines of ‘ the most popular shares in February’ or ‘the most popular stock in month.’ Brokers are prone to publishing these types of articles on their websites every month. The reason is probably these articles get a whole lot of views but the problem is they can be very misleading, especially for beginner investors. Whenever I read these types of articles, I ask myself ‘how can a stock be popular?’ After all, for every buyer there is a seller.

 

When you see an article detailing popular shares, you need to understand the underlying facts. You need to understand the methodology. Just because a stock like Tesla wast the most popular last month – because it has the most buys – it is also the least popular at the same time – as it has the most sells. Remember the golden rules; for every buyer of a stock there must be a seller of that same stock.

 

On the other hand, if a stock is popular, you will see its price shoot up. This is because there are many buyers clamouring to buy the stock and thus the sellers will set a higher price they want to sell at. Buying stocks due to ‘real popularity’ and increasing stock prices is a momentum strategy. Shares on with gaining momentum are the real popular stocks. Not the ones your broker sends out depicting which shares have traded the most in a month.

 

This should also serve as a lesson for you not to blindly read investment articles. You should understand how the author of the article has reached their conclusion or what methodology they have used to draw out facts, or ‘alternative facts’.