Are Recommendations for ‘Top Shares To Buy’ Worth the Paper They are Written On?

Are Recommendations For ‘Top Shares To Buy’ Worth The Paper They Are Written On?

Iain Overton looks at how buying shares recommended in the mainstream press’s financial pages may not be the money-maker one would hope for

The American financier Bernard Baruch once said that “the main purpose of the stock market is to make fools of as many men as possible”. But with millions of British households facing rising costs and a looming recession, to what degree are Britain’s newspapers inadvertently recommending potentially foolish investment decisions?

Research by the Byline Intelligence Team has found that investing in 57 recommendations of the top share “buys” chosen from the UK’s leading broadsheets a year ago would have lost you almost a third of your income if you had to sell those shares today.

Analysis of The Week – a weekly magazine that takes the top articles and news stories from a broad selection of media sources – showed that the 57 mainly-UK stock market ‘Best Buys’ in late August, September and October 2021 cumulatively were down 30% from the recommendation a year later. 

This compares with the FTSE 100 Index which is down about 2.6% from a year ago.

This is not to say that it has been an easy year for investing. Over the past year, the FTSE AIM All-Share Index and FTSE 250 Index have declined by 35% and 23% respectively. The British pound has dropped 15% to the US dollar, interest rates are on the rise and a UK house price drop looks imminent.

But something sold as a ‘Best Buy’ should perhaps have that ambition. Overall, if you had invested £100 in each of The Week’s recommended ‘Best Buys’ last year, you’d have spent £5,700. But if you were forced to sell today, your shares would be worth about £3,800, a drop of 30%, and a loss of £1,900.

Further, the analysis showed that 88% of the recommendations from papers (50 of 57) such as ​​Investors Chronicle, The Mail on Sunday, The Sunday Telegraph, The Sunday Times and The Times were lower in the autumn of 2022 than they were when recommended twelve months ago.

Of note, the 15 ‘top buys’ picked by The Week from the Investors Chronicle over August, September and October 2021, were down some 43% a year later. 

If you don’t spend your time scouring the money press, The Investors Chronicle is a weekly UK magazine for private investors and is published by the Financial Times Group. It should be noted that the paper does not recommend share buys, per se, so the choice of which shares to recommend was taken by The Week, not the Investor Chronicle’s editor. These recommendations are a snapshot, then, and do not reflect the Investor Chronicle’s overall coverage of the shares selected or its wider coverage of all markets. 

This investigation did not look at each recommended paper’s own coverage regarding short-term investment gains, so the Investor’s Chronicle’s reporting presented as a top tip in The Week’s short-list does not necessarily reflect its wider position. Still, it still holds true that 14 of the 15 share buys picked by The Week from the Investor’s Chronicle were down a year on – and some considerably. The Investor’s Chronicle did not respond to requests for a comment.

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Buy Buy Buy, Sell Sell Sell

This same pattern was seen elsewhere. 

Some of the worst-performing The Week recommendations plucked from investment papers were for the online food delivery company Deliveroo. The company was recommended by Investors Chronicle to buy at 390 pence in late August 2021, down 77% to 91 pence in later October 2022. Another was the lighting wholesaler Luceco, which was recommended by Investors Chronicle to buy at 439 pence in mid September 2021, down 80% to 87 pence 13 months later). 

A final example was the British online fashion retailer Boohoo Group, where shares were down from a Times recommended buy at 271 pence in early October 2021 to 41 pence just over a year later. The three shares that The Week recommended that actually performed as the recommendation suggested were BP, from The Daily Telegraph and up 62%; British American Tobacco, from Investors Chronicle and up 26%; and Bluefield Solar Income Fund from The Sunday Telegraph up 9%.

It is not known what methodology The Week uses to select its ‘Best Buys’. But our findings raise questions as to whether investing in the stock market should ever be a thing entrusted to amateur buyers taking their recommendations from a short-list culled from wider journalistic recommendations.  

The Week responded to what their editor called a ‘bracingly good’ investigation, stating: “As a weekly digest, operating in an age of real-time share trading, we don’t pretend to be tipsters. Our function is to reflect what a wide range of other newspapers and magazines (some themselves weeklies) have published.”

“”Obviously, performance is important to us – it’s great when we have a good run and dispiriting when we don’t,” it added. “But it isn’t the only criterion. We try to offer insight into the full gamut of the UK shares world, which means we give space to many more (inherently riskier) small-cap companies than you would find, say, in an average portfolio”.

One lesson might, then, be first learned from this: most shares are not for short-term gain.

But perhaps the words of the American journalist William Feather should also dominate when people consider ways of making money in the face of a prolonged recession: “one of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.”