Follow That Tip? Site Rates Stock Touts Pitched in Media

Validea is not a disease, but some investors might find it infectious. The oddly named Web site (https://www.validea.com) is based on a valid idea indeed: objectively assessing the swelling ranks of supposed experts doling out stock picks via the Internet, magazines and other media.

New financial sites should fill a void and filter through--not add to--the virtual noise. Validea, launched in its current incarnation this spring, scores on both counts.

Here’s how the free site works: Stock selections are culled from about 35 media outlets and the pickers and sources are ranked based on the average performance of their recommendations over periods ranging from a week to a year, going as far back as 1995.

For the most part, we’re talking about financial-journalist stock pickers, or picks made by money managers or analysts in interviews they do with major publications or TV outlets.

With the usual caveat that past performance is no guarantee of future results, Validea’s idea here is to show whether it was profitable to jump on recommendations that perhaps millions of other people were reading or hearing at the same time.

What Clicks: Despite design flaws and minor bugs, Validea offers a nifty mix of information and ideas. If you’re a short-term trader, for example, you might look at choices by Alex Cheung, manager of the Monument Internet Fund, whose picks have gained a chart-topping 16.8% on average in the week after being mentioned in stories, according to Validea.

But if you buy and hold, you might cringe at the one-year average return of -2.9% that Cheung’s picks have produced. Instead, you might heed Mary Meeker, the Morgan Stanley Dean Witter tech analyst whose picks top the one-year performance list among market “personalities” (that’s Validea’s categorization of Meeker) with a gain of 282.5%, through last week.

Validea ranks individual columns as well as publications and Web sites overall. Fortune magazine leads the magazine list for average one-year stock performance, with a gain of 54.9%. Among Web sites, Red Herring’s site (https://www.redherring.com) and Microsoft MoneyCentral’s Careful Investor column (https://www.investor.com) are the one-year winners, with returns of 82.8% and 76.4%, respectively, through last week.

Interactive tools include a new-ideas page, where you can screen for picks from the last 30 days, refining the search by industry or minimum rating for the selector (five lightbulbs is Validea’s version of five stars).

The “guru screener” lets you assess a stock’s merits based on Validea’s interpretation of the theories espoused in books by nine experts, or screen for stocks it believes would pass muster with any combination of these gurus.

For kicks, we asked for picks that would have “some interest” to legendary fund manager Peter Lynch, momentum-stock proponent William O’Neil and value-investing pioneer Benjamin Graham (who, being dead, could not be reached for comment on Validea’s gimmick). The result? Eight stocks with good relative price strength and low price-to-earnings ratios, including audio/video products maker Cobra Electronics (ticker symbol: COBR), shoe seller Genesco (GCO) and specialty retailer Wilsons the Leather Experts (WLSN).

What Doesn’t: Validea has staked out a useful niche, but the site remains a work in progress.

Searches can be frustrating. Validea distills the logic behind each pick into a curt synopsis with no link to the original article or Web site.

What’s more, the rankings credit authors for “picks” even when they are quoting sources and not necessarily expressing their own views (Carolyn Whelan of Barron’s, for instance, is a leading stock picker thanks in part to her early 1999 story “Bulls Say Qualcomm Is Poised for More Gains”).

Validea co-founder Keith Ferry said the site is addressing those issues and expects to make improvements soon. The site also plans to widen its coverage universe by including TV, uncelebrated Wall Street analysts and perhaps major newspapers, and eventually might track picks over a longer holding period, such as two or three years.

Site Rating: 1.8 (on a scale of 1=strong bookmark, 5=world wide worthless).

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E-Valuation is an occasional feature rating financial Web sites. Josh Friedman can be reached at josh.friedman@latimes.com.

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Stacking the Mags

These financial magazines have had the highest average 12-month returns on their stock picks since 1995, according to Validea.com, a Web site that tracks experts’ stock recommendations.

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1-yr. avg. Magazine return Fortune +54.9% Individual Investor +37.1 Bloomberg Personal +34.1 BusinessWeek +29.4 Kiplinger’s +24.9 Money +24.5 Smart Money +22.8 Barron’s +22.3 Forbes +21.4 Worth +20.3 S&P; 500 index +25.4*

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* Annualized return since 1995

Note: Validea.com’s database goes back to 1995, but some publications have been tracked for a shorter period.

Source: Validea.com