Seeking Alpha is a great place to find multiple opinions and varying levels of analysis on publicly traded stocks. As an individual investor it can be very difficult to find good information. Chances are you probably don’t have your foot in the door with investor relations or the ability to meet with company management. Luckily the SEC has made it a point to look out for individual investors by mandating that companies operate with a certain level of transparency and publish quarterly reports detailing their operations. That said, if your an individual investor without any formal training in accounting or finance, those reports might as well be in brail. Luckily for you, there are sources such as Seeking Alpha and other blogs that can help you make your way through the swamp of stocks; you just have to watch out for the alligators… Before taking investment advice from Seeking Alpha or any other financial publication, ask the following three questions and then do research of your own:

Who authored the Seeking Alpha post?

Anyone can write a blog or Seeking Alpha post recommending that people buy or short a stock. It could be a hedge fund analyst with insider information, or it could be your grandma posting under the alias: ValueBoy. The bottom line is that you just don’t know unless you check, and even then you may not be able to get a complete picture of the author’s background. Before I read any Seeking Alpha post I check to see if the author has had any professional experience, whether it’s investment related or in an industry related to the stock. The bottom line is that I don’t want to take advice from someone who knows even less about a company than I could learn from reading the companies SEC filings.

Is the Seeking Alpha post plugging a stock that they own?

I like to see that an investor’s money is where their mouth is. If someone told me I should buy a stock that they didn’t own themselves I would wonder if the idea really had any merit. Obviously it wasn’t good enough for the person recommending it to buy it. On the flip side of things, Seeking Alpha has become a place for talking up ones own investments to get investors interested in those stocks. While this has much less effect on large companies, it can, and often does effect small companies. For small companies especially, take Seeking Alpha posts with a grain of salt on both the long and short side as they may be malicious attempts at market manipulation.

What are the Author’s intentions behind writing posts for Seeking Alpha?

As a blogger I understand the value of being able to promote my work and establish links on popular, heavy traffic websites. For many financial market bloggers, news letters, investors, and even investment companies, Seeking Alpha is a forum that serves that purpose quite well. Many authors on Seeking Alpha intend to get people to come to their website and either subscribe to services or simply generate advertising revenue. Their recommendations don’t need to be sound to accomplish this goal, they just need to be compelling. Make sure that you read between the lines when assessing any Seeking Alpha or blog article so you can confirm it is not just fluff that was written to grab your attention.

Always do your own unbiased research before acting on advice from Seeking Alpha or any other publication

While subscribing to a service that recommends stocks such as Seeking Alpha, Barron’s, Grants, Investors Business Daily or Zacks can be a convenient way to get investment ideas, chances are that the opinions you encounter will leave you with a biased viewpoint. Before acting on that bias, do your own research! That means you need to read through the last few 10-Ks, assess the market prospects for each of the companies business segments, compare the company to it’s peers, and make a reasonable assessment of future profitability and growth. Do not base your purchase or short of a stock on one or two recommendations found on the internet. If you don’t have the time necessary, ability, or the desire to do your own research, then you would be much better off owning a diversified portfolio of index mutual funds/ETFs.

While Seeking Alpha can be a great place to supplement your research and compare contrary opinions, it simply can’t replace doing your own research on stocks. If you find yourself swayed by investment advice from Seeking Alpha, make sure that you check who the author is and figure out what their intentions are before diving in head first, after doing some research of your own of course!