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.

BRAND NEW: #1 ASX Tech Stock for 2014 - FREE!

This ASX tech stock is ON FIRE, with the shares gaining 700% just since 2012. But the massive gains may just be beginning, says one top stock picker. You can get all the details now, free, in our brand-new investment report, "Joe Magyer's #1 ASX Tech Stock for 2014." Simply click here, it's FREE!

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.