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Investor Types to Avoid

In 2004 , biotech was hot and the tipster talked a lot about new drugs that were just about to get FDA approval (none worked out). In 2005 , the tipster was been big into government and military contracts; apparently, he gets to brunch with Donald Rumsfeld.

For a person who supposedly has information that -- if true, is likely illegal -- the tipster's trading record is surprisingly bad. With all of his connections and illicit info, it turns out that the tipster is little more than a rumor monger -- and one who's usually late to the party at that.

  • The Liar: Most industries have their fair share of B.S. artists. But there is a very special type of liar attracted to trading.
  • You know these guys; they never seem to have a losing trade. When they discuss their executions, they consistently manage to buy at the low tick of the day. When they sell, their executions invariably are the very best possible print -- and on almost every sale.

    Think about how often you've managed to get the very best print of the year -- or even the day. Over the past decade, I can count on one hand the number of times I've top-ticked stocks on the way out: Iomega (IOM), Micromuse ( acquired by IBM (IBM - Get Report)) and Qualcomm (QCOM - Get Report). Meanwhile, I've had countless sells at the day's low print.

    Somehow, the liar manages to accomplish a decade worth of statistically aberrant prices each day, before lunch.

    I never call these clowns out. Why show your hand? But I make a mental note who the liar is, and judge all future statements accordingly. You should do the same thing.

  • The Permabull or Permabear: Among the most dangerous and costly clowns in the circus, these guys are responsible for more destruction of wealth than any other player.
  • You doubtless recall the permabulls from the late 1990s. Most are little more than slick salesmen. They do not do much in the way of original research, but you can imagine the inner workings of their minds, sifting through reports looking for just the right bullet points.

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