How to Vet Stock Tips

Everyone will have his or her own way of vetting stock tips. But permit me, if you would, to describe what I do when given a stock tip. And just so this a real-time, real-money exercise, let’s work with ARL, which Andy recently bought --this Monday morning?-- at $27.43.

#1. Chart it, using whatever template and time-frame you customarily work with. The first screen capture is my ‘go-to’, default chart where the prices shown are as of Friday’s close. In other words, I want to be putting myself into the same shoes the person might have been wearing when the tip was made and not be pulling the cheap shot trick of having hindsight. Said another way, and as Justin Mamis insists in his book The Nature of Risk and Stan Weinstein in his,

“What evidence was there in the tape that the stock was a timely buy?”

This time, the facts are so obvious that no further charting is needed. On strong volume (relative to previous volume, which --actually-- is tiny), ARL broke out, every day gapping up, six days in a row, inviting this prediction. It has likely maxed its move up and is likely due for a retracement. Therefore, DONT CHASE.

Why did it move up so quickly? Who knows? Likely an earnings announcement, to which I never pay attention. But ARL’s fundamentals might be worth looking at. So let’s hop on over to Simply Wall Street to see what they say.

SWS regards ARL’s 2961.5% earnings growth as a positive thing. I see it as a huge risk, because it’s likely to be unsustainable, especially in a rising interest-rate environment and in an economy that’s in a recession. However, let’s benchmark it against an index that tracks the US real estate sector, such as IYR.

That chart tells you all you need to know that ARL is NOT a ‘defensive’ investment, as Graham defines the term. Nor is it an ‘Enterprising investment’. Instead, it is a Highly Speculative bet and --as such-- if a position were to be taken under more favorable circumstances, the position would have to be a small one. Confirming that label as ‘speculative’ is the fact that ARL is nearly illiquid, with an avg daily vol of just 5,457 shares.

“How small a position?”, you might ask. That would depend on the percentages established in one’s investment plan, which is a post for another time. But for Andy’s current, $1,991 account, I’d suggest that buying just one share is as much as could have been risked, when the three risk tranches of Defensive, Enterprise, Speculative are weighted 3:2:1, with each tranche divided into Wm O’Neil’s suggested ten piles of money.

Lastly, do this. Try to determine where support and resistance are. A 1-year chart with weekly bars suggests nearby support is around $20, with longer-term support around $14. In other words, there’s a lot more downside to this stock than upside. But its balance sheet looks good. So this seems to be yet another instance of “good company, bad stock”, and I’d pass.


Thanks Arindam that is well thought out. I appreciate your help.



What process did you use to make a decision to buy ARL?
Which stocks did you discard? Why?
How did you decide to size your position?
Where’s your cut-loss point?

I don’t care whether it’s called ‘investing’, ‘trading’, ‘speculating’, or ‘gambling’. It’s all just gambling in the best sense of that term, meaning, making probabilistic bets on the basis of very flawed information that back-testing has shown to have a positive expectancy.

Buying stocks is easy. Click, click, Click. Managing those positions isn’t. That’s why ‘risk-management’ trumps everything.

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I used the 5 day gainers to find a stock that was having 5 days of gains. Then I looked at their financials at They had about 206.5 mil in cash and 289.2 mil in debt. They are a real estate company and have 270.1 million of real estate on their balance sheet and sold about 1.8 billion last quarter and are earmarking that for further real estate , pay down debt etc. Their Income statement was inflated because of the sale. I probably should have been more through

I also looked at Yahoo and saw their P/E was very low, most likely because of the sale of land. Saw it was a rising stock.

I threw away other stocks because they were to small and they were not profitable. A lot of them were early bio stocks, also and this is an edit because I thought it later on. Many of them were much further along on the green sticks. So I thought they might be running to long.

I was using the Simon sez rules All in and full speed ahead.

I am willing to lose 10 percent but I am rethinking that because of what you said. I didn’t look at the resistance and since I am at the top it might have a hard time getting over. So I am looking at it tomorrow and might cut and run.



One more thing I am noticing today Arindam. It is bouncing up against resistance just like you said, and it is trying to decide what to do. The PB is under 1, most likely because of all the property on the books, so selling property probably was a good thing for them especially if we go into or in a recession. Also P/S is rather high problem because the price of their stock is at the high end and their rent is not increasing that fast, although they did collect 99 percent of their rent. This is an interesting company. It acts like a reit without the protection of Reit status or having to give dividends. Headquarter in Dallas Texas which should be a great area for development.


The PB is under 1.


Are you trying to trade ARL, or invest in ARL?

In how you state your reasons for buying, or how you give reasons for continuing to hold, you’re sending mixed messages. If it’s just a ‘trade’, fundamentals don’t matter. If it’s an ‘investment’, then technicals become a part of risk-management, but not the engine for the trade.

Also, if you selected ARL on the basis of its being a 5-day gainer. then you’re trading ‘monemtum’, not ‘mean-reversion’, and Ben Graham can’t be your mentor. You need to look to someone like Wm O’Neil.

If you mean to trade ‘Mo’, then get hold of Pring’s book on momentum indicators, as well as start including volume-based indicators in your chart templates.

Lastly, O’Neil does use fixed-percant stops. Weinstein argues stops should be based on structure and placed just below resistance. So that’s another book you need to work your way through.

Lastly, Lastly. According to GAPP rules, PB is based on purchase price of the asset, not its current market value. In the case of real estate, the two are often quite different. Translation: ARL’s intrinsic value might be higher than is being implied by PB.


Ok I meant to trade Arl, so I shouldn’t worry about fundamentals at all. That is interesting and good to know.

Ok thanks, I was using Quills idea’s on how to find tradeable stocks.

I am trying to find a way to hit the most singles and doubles. Really looking for the sure thing. I know there isn’t any sort of animal but if I can find a way to get close, that is what I want. I am thinking it might be a good Idea to either Tetter Totter or Just go with the companies I have followed and know the best.

That is a very good point Arindam, your right their property could be on their books at a much lower valuation.

But, today, After thinking on what you said with the stock standing at resistance. I decided to sell out. After watching it bounce against resistance my thoughts were that it probably wouldn’t break out because if it was to break out it should have already, and then came down to test, what would now be support. Those were my thoughts.

Andy sold ARL 1/31/2023 27.21 for a loss of $15.56. I know have 1974.61

Thanks for you help Arindam. So could you tell me what you consider a trade and an investment? What if I wanted to hold something as an investment until it turned on me and it turned in a weeks time? Would you think that must be held onto under your system? Or is it just a frame of mind you are talking about? Like a trade would be something you want 2.5 percent out of and an investment is something you hold till the stock turns?

thanks again,

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There’s a saying that’s a propos here. “The man who has two watches never knows what time it really is.” Ben Graham said a similar thing (paraphrasing) “Be a ‘Defensive’ investor, or be an ‘Enterprising’ one. Don’t try to be both.”

You’ve gotta decide for yourself what it is that you want to accomplish. Quill can offer suggestions, as can Lakedog, or physician, or me, or anyone else. But it’s your money being put at risk, not ours. Write a business plan and test it, first by doing paper trades, and then with (small amounts of) real money.

Over the long haul, who survives in the investing/trading game? Them who know themselves well. Yeah, having the discipline to show up for work every day and having the willingness to do the drudgery of the back-office work helps, never mind having the winds of a bull market at your back, which isn’t the present case. But matching one’s game --be it ‘investing’ or ‘trading’-- to one’s means, needs, interests, goals, and opportunities is what is most crucial, as Schwager’s series of books on ‘market wizards’ documents.

So let me close with two further bon mots

" He that cannot abide a bad market deserves not a good one." (17th cent, unattributed)

“There are no roads but by walking.”(Joan Manual Serrat)



Right, I am getting a better idea of what is going on. You have been a great help and I appreciate your input, it has been invaluable. Thanks for the new tool to play with.



Watch the following video
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Thank you Quill,



This is a hoot. Had you held ARL, today you’d be ITM.

Also a hoot. 2 months ago, Simply Wall Street was pitching ARL, Here's Why We Think American Realty Investors (NYSE:ARL) Might Deserve Your Attention Today

So, to your process for vetting stocks, add, “pull the news and chatter.”

Right Arindam but the trade was incorrect so I can’t worry about what might happen. It went against the rule of not buying near resistance.

Thanks Arindam that is a very good point. How would you vet an article that is 2 months old? That would seem like something a long term investor would be looking for?


…but the trade was incorrect. So I can’t worry about what might happen. It went against the rule of not buying near resistance."


I’ve taken the liberty of bolding some key words. Here’s a chart that makes that point.

Or, more exactly, the rule is actually two rules:

#1. Buy when price breaks above resistance.
#2. Sell when price falls below support.


Quill (and all),

Investopdia is also a good source for info on how to build a trading plan.

From another source, here is what to include in a trading plan:

  • Why are you trading?
  • What are your goals?
  • What time-frames will you trade? I.e., multi-day swing trades, intraday swing trades, etc.
  • Which setups will you trade? What strategies will help you stick to these setups?
  • Entry/exit rules that you will follow once in a trade
  • Risk management rules
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What is the Warehouse function?

  1. maintain inventory to satisfy demand at a profit.
  2. maintain liquidity to build inventory at fair prices.


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Who are you: an Inventory Manager

what do you do: Director of Inventory Management

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I’m late to the party, but wanted to comment on the question of how one might vet stock tips. Beyond the obvious distrust of “tips,” one of the things I do with stocks I’m wondering about is look at their relative strength. How they are doing relative to their peers in general (as in SPY) and in their sector or Industry grouping. I tend to be more of a trend trader and the overall direction is important. Someone in another thread asked to have a review of PERI, let me use it as an example in such vetting.

From a technical chart pattern, the elephant in the room is two Doji’s/Spinning Tops which tells you there is a ton of indecision on the stock and reversal is likely. Since it has been on an uptrend, the suggestion is likely a downturn. That is also supported by Heikin-Ashi candles showing shortening and development of lower wicks elongating. So from a candle perspective, it’s a good one to avoid.

HOWEVER, stocks commonly take breathers and a pullback towards the 20 ema is a common process and sometimes makes a reasonable entry for a quick trade. Below is a chart I use that uses the relative strengths of the ticker, compared to SPY and the tickers industry group. It is beyond easy to setup in StockCharts. Here’s PERI.

The chart has four lower components that starts with StockCharts Accumulation/Distribution. Is it predominately being bought or sold is the question? Next is the relative strength of the tickers industry grouping, in this case software is the industry group for PERI, followed by how the ticker (PERI) is doing relative to the industry and finally SPY. It isn’t fundamentals, but suggests how it’s doing in that perspective.

In PERI’s case, it shows that the stock has been being accumulated in a strong industry group. It has been showing some strong strength relative to it’s group and SPY except for the last few days. Interpretation, PERI is a strong stock in accumulation and in it’s group. So a relatively stock chart with lousy immediate technicals. Therefore, while it’s not a stock to trade today, if it makes a nice pull-back towards the 20 ema, it might be worthwhile as a short trade. In short, it’s an option to put on a watchlist and possibly buy if it makes a good pullback to/towards the 20 ema with tight stops and anticipation of only being a trade for 5-7 days. Of note, PERI has a SCTR of 95.8 (StockCharts technical ranking) which is excellent. And as of this writing at 8 pm, it’s futures are up 1.5%. We’ll see how it goes tomorrow.

Just a perspective…



A rising tide floats all boats…PERI up 2.93% this morning. :crazy_face:

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Out of curiosity, went back to look at PERI

When last we looked (or at least me) it had gapped up. But that gap turned into a shooting star and it has pulled back and bounced off the 34 ema. It’s a bit more interesting. I may have to look at CBOE data and be sure there are no major calls stacked on it as this is Max Pain week with OpEx Friday, but otherwise will have to look how it opens today. Futures for it are up 0.5%.