GorillaTrades Unmasked

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GorillaTrades, like many other technical players, entirely ignores the fundamentals of a stock—the company's earnings, sales, or the state of its industry—in favor of market data like price movements, trading volume, and other technical indicators. Requiring lots of trading, it's definitely not an approach for plain-vanilla, Warren Buffett-style buy-and-hold investors.

GorillaTrades began as a free service, with the site's Web server housed on a laptop in Berman's nephew's college dorm room. The site's nickname came from frequent references at the time to tech investors' favorite, Microsoft (MSFT), as the "800-pound gorilla" because of its size. But the name quickly took on a life of its own. The mascot, and the jungle theme of the GorillaTrades site, introduces a bit of humor to "an otherwise, cold, slick industry," Berman says. "If we can make people feel more comfortable and make it more approachable, this is a good thing for all of mankind."

Effect on the Market

When, later in 2000, the site became a paid service, only 240 people signed up, Berman says. (That number has since grown to "thousands and thousands" in 55 countries, he says.) He tried to avoid the mistakes of other stock-picking sites: Many were dishonest, making money on illegal "pump and dump" schemes by driving up a stock price and then profiting by selling out. Berman says he doesn't trade in the stocks he recommends. He says he chooses larger companies and gives subscribers advice designed to avoid big impacts on the market. Despite this, many GorillaPicks do see higher trading volume and wider price swings immediately after being chosen.

GorillaTrades' rise in prominence has mirrored the recovery of the stock market. The size of GorillaTrades' presence on TV and in print—if funded by the fees of those thousands of subscribers—suggests do-it-yourself trading may be popular again.

The stocks listed in the gorilla's current portfolio are impressive, often showing double-digit gains. But that's because the gorilla sells off losing stocks quickly and holds onto winners for a long time. Evaluating the full record of GorillaTrades' picks is difficult, both because the company releases limited information and because there are several different ways individual investors could trade based on the gorilla's advice.

Watching the Returns

One is to buy when a new pick hits an initial "trigger price." This is how Liebowitz, a subscriber who is featured in GorillaTrades ads, tends to trade. "I just like to find the freshest ideas I can," he tells BusinessWeek.

When a stock "triggers," it becomes a part of the GorillaTrades portfolio and is tracked on its Web site. A BusinessWeek analysis of this data is revealing: If you invested $1,000 in all 311 gorilla picks that triggered in 2006, you would have lost $1,051.25. That's a 0.3% loss in a year the market benchmark S&P 500 rose 12.8%. In 2005 the same portfolio would have returned 1.55%, while the S&P 500 was up 3.01%. The portfolio has returned 2.13% so far in 2007, while the S&P 500 is up more than 7%.

But Berman says these results paint an unfair picture because he advises investors to not buy at the trigger price. He says investors should wait until picks hit a higher price and a key volume level—what he calls the "confirmation level." Despite this advice, the GorillaTrades site doesn't provide data on performance based on confirmation picks.

Don't Focus on Results

Berman provided raw data from 2007 to BusinessWeek, however. After calculations, it showed a portfolio of confirmed picks up just 1.6% so far this year. That does not include new confirmed picks that haven't been sold off yet. Berman says it's unfair to judge GorillaTrades by these results because no two subscribers use GorillaTrades in the same way. The gorilla provides "a great menu to start with," but no subscriber will buy all the picks.