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3 reasons why you should ignore the brokers’ stock tips

If there was any doubt that brokers were focused on the short term performance of stocks, this article should leave you in no doubt.

Morgans has picked six stocks that they believe will outperform the market, based on short to medium-term catalysts.

Picking stocks to outperform over the next 30 days or so is not investing, it’s speculating. If you’re a trader, good luck to you, but it’s unlikely to generate long-term wealth. For one, turning over your portfolio every month will cost you significantly in brokerage, likely eroding any outperformance you may have made.

And while the list of stocks Morgans have picked include some decent companies such as Flight Centre Travel Group (ASX: FLT), Crown Limited (ASX: CWN), Seek Limited (ASX: SEK), Sydney Airport Holdings Ltd (ASX: SYD) and Harvey Norman Holdings Limited (ASX: HVN), holding these stocks over the long-term is likely to be much more beneficial to your wealth.

Reason 2. Holding stocks for a month means you will more than likely miss out on the dividends. And as we illustrated in this article, dividends can represent up to 70% of the real returns on your portfolio. As Warren Buffett has been repeatedly quoted, “Our favourite holding period is forever.” Can you imagine the world’s greatest investor changing his mind every month about which stocks he was going to invest in?

And the third reason is capital gains tax (CGT). Any profit you make on assets you hold for less than 12 months will not qualify for the 50% CGT discount. As an example, say you make $1,000 profit on shares you bought and sold within a year. Under ATO guidelines, you have to include $1,000 in your taxable income. Had you held the shares for more than a year, you can apply the 50% discount, and only need to include $500 in your taxable income.

Foolish takeaway

Buy and hold investing is not dead, despite recent media reports suggesting its demise. Holding good quality companies over the long-term will be much more advantageous to your wealth.

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Motley Fool writer/analyst Mike King owns shares in Flight Centre, Seek and Sydney Airport. You can follow Mike on Twitter @TMFKinga

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