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Avoid Sucker Stocks: Beware New Stock-Buying Apps

NEW YORK ( TheStreet) -- I had to do a double-take when I saw the news from TheStreet's Gary Krakow last week.

TD Ameritrade (AMTD - Get Report) upgraded its mobile app to include a feature -- "Snapstock" -- that allows customers to scan the UPC barcode on a product, download information on any public company behind the product and then buy the stock of that company right there on the spot. TD tells us that this functionality "allows investors to approach shopping through a whole new lens." It also takes the Peter Lynch invest in what you know concept to a whole 'nother level.

Face it -- in practice, it's really invest in what you sort of think you know, but you don't, and hope for the best.

I've never been a fan of Lynch's model. He makes investing sound way too easy. He gives instinct and intuition too much credit. The idea that we can just pluck "ten-baggers" out of the air by recognizing the things we see people, including ourselves, buying and using day-to-day, stinks. It's dangerous. This new smartphone app runs the risk of upping the ante vis-à-vis impulsive and uninformed investment decisions.


To be fair, TD deserves some credit. It's one of a handful of retail brokerages that provides solid platforms for a wide range of investors. And this app allows you to gather information and add stocks to a watch list. TD offers the option to make a trade, on the spot, as just one of the features. Ultimately, it's up to the individual investor to not abuse the convenience.

But, for many, it will likely prove all too easy to abuse. Perhaps those who are most prone to hurt themselves will not be at the stage of their investing lives to even get wind of the app in the first place. Then again, something like this could actually open the door to the uninitiated, making it more likely for beginners to make costly mistakes.

However it shakes out, it got me thinking about the Lynch way. Like any other model, it often works wonders. Think stocks like Apple (AAPL - Get Report) and Chipotle Mexican Grill (CMG - Get Report). If you walked into an Apple Store or a Chipotle location three, four or five years ago, acted on Lynchian instinct and bought the stock, you're better off for it today. But, for every Apple or Chipotle, you'll find quite a few dogs, fads and fleeting phenomena you probably should have left alone.
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