Thursday, June 01, 2006

And Yet Another

I must be getting cynical in my old age.

An article dated May 30, 2006, in The Motley Fool says:

Lastly, we had Toro (NYSE: TTC) mow down estimates.... Shareholders have enjoyed a 40% surge in Toro's stock over the past seven months. Maybe that's not as rewarding as a ride on one of the company's grass-chopping machines, but it's one way to keep your greenery in check.

So keep watching the companies that lap expectations. Over time, it can be a rewarding experience for investors -- the kind of surprise that market-watchers relish in the Rule Breakers newsletter service. The average Rule Breaker selection has trounced the S&P 500's market return. Want in? Check out a 30-day trial subscription.

Given the transition from the first paragraph to the second, you might be forgiven for assuming that profits like those which Toro owners gained over the last few months are among the advantages you will get if you buy a paid subscription to The Motley Fool's Rule Breaker Newsletter. Now I don't know what, if anything, that newsletter has said about Toro. I don't have any subscriptions to Motley Fool newsletters. (I once had one which I won as a prize, but I didn't renew it. Among other reasons, their customer service was awful.) However, I do know what they said the last time they mentioned TTC in a free article, on August 23, 2005. The article was very derogatory, and ended up:

As you might imagine, I'm no longer so favorably inclined toward Toro shares. Sales growth is weak (and has been guided lower for the year), debt is on the rise, and here we are talking about "record earnings." I can't deny that Toro has been a great stock over the past five years, but with a transition in management and questionable deployment of capital, I'm no longer so sanguine about the next five years.

It's funny that when the target company does well, The Motley Fool hints that they have been recommending the stock, while actually their published opinion over the roughly the same time period was just the opposite. No, not funny - hysterical.

When I saw that derogatory article last August, I decided to re-research Toro, which I owned, and still do. I couldn't get a clear hold of what to do, so I decided to do nothing, i.e., to hold onto the stock. Of course, I'm happy that that's what I did.

Aside from not trusting paid sources when they report their own past accuracy, that may be the moral of this story: When you don't know what to do, do nothing. At the very least, you'll save transaction costs, which can be meaningful over the long run.


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