The sharp investor never takes stock tips blindly.

Yet he or she will keep an open mind and consider ideas from knowledgeable, trusted sources for serious study.

(Right now you might think: Isn’t the art of investing paradoxical?)

 View Enlarged Image

For short sellers, it’s wise to continually look for ideas. After all, most of us do not work for bulge-bracket investment banks that hire dozens of industry analysts.

IBD’s “Making Money” section and the intraday market updates at IBD’s Stock Market Today on Investors.com can help. These columns will highlight stocks that fail fast after breaking out of a late-stage base. Finding these sorts of breakdowns is a key step in winning at the short selling game.

In addition to scanning features such as Stocks On The Move (today on Page B7), Stock Spotlight and the Smart Table Review  — the Cut List in IBD’s Leaderboard may also present a good source of ideas.

Launched in the summer of 2011, Leaderboard has two big missions. The first: Identify top-class stocks that are poised to break out to new highs and make solid gains during a market uptrend. That’s the job of the Leaders List. The second mission: Identify former big market winners that have topped and may present valuable shorting opportunities.

Former leaders are among the best candidates for shorting. IBD research has found that the average decline of a past market leader is 72%. So if such a stock topped at 100, it could fall as far as 28 before it finally bottoms out.

When you view the stocks on the Cut List, keep in mind that not every stock featured is immediately at a short sale point. Some of these names come from the Leaders List after showing poor action.

IBD’s team of markets writers and editors monitor each stock’s action to determine whether it may be approaching a short-selling entry point. Some stocks will rebound and return to the Leaders List. Others might limp along, neither strong enough to buy nor weak enough to sell short, and eventually are dropped from the Cut List.

Right now, few stocks are on the Cut. At the start of the year, nine made the list. When the market shows signs of severe weakness and the major indexes go into correction, expect the list to expand.

Rackspace Hosting (RAX), the San Antonio-based innovator in cloud computing, made a spectacular run from its 2009 bottom at 4 to a peak of 81.36 in late January this year, a 1,934% gain in less than four years.

But its breakout from a third-stage cup-with-handle base at 70.10 didn’t yield a 20%-to-25% gain. Instead, the stock fell sharply for four straight weeks. When it cut through the 10-week moving average in big volume with the ease of sharp scissors through ribbon, it was the first proper short entry point.

By mid-April this year, Rackspace slumped 46% from its peak. A two-week rebound came in thin volume. On May 6, when Rackspace closed at 49.95, the stock entered the Cut List 1. Three days later, the stock plunged 25% on a disappointing Q1 report (a 12% EPS increase marked the fifth straight quarter of decelerating growth).

With earnings season winding down, a large number of companies have reported quarterly earnings above views.

Yet sales have come in below expectations for many firms.

When evaluating companies, make sure they have strong growth in their top and bottom lines.

A number of IBD 50 companies have posted solid earnings and sales gains. Nationstar Mortgage Holdings (NSM) smashed expectations on May 7 with Q1 earnings that grew 52% to 85 cents a share. Sales bolted 163% to $431.1 million, marking the fourth straight quarter of triple-digit growth.

The company is benefiting from an industry shift in mortgage servicing from banks to nonbanks. Buyouts have also driven growth. Along with its Q1 results, Nationstar said it was buying loan originator Greenlight Financial Services for $75 million in cash.

Nationstar is extended from a 41.86 buy point from a cup base.

Rival Ocwen Financial (OCN) recently posted a 121% surge in its Q1 profit, but still badly missed expectations.

Revenue, which easily topped views, jumped 147% to $406.7 million. That marked its best performance in years.

The stock closed 5% past a 42.17 buy point from a cup base.

Biotech Regeneron Pharmaceuticals (REGN) earlier this month blew away views with first-quarter earnings that surged 381% to $1.78 a share. Revenue soared 90% to $439.7 million, thanks to demand for Eylea, a treatment for age-related macular degeneration.

The company bumped up its forecast for full-year sales of Eylea to $1.25 billion to $1.325 billion, up from a prior outlook of $1 billion.

Regeneron is well extended from a 178.09 buy point from a cup-with-handle base cleared in early April.

Fuel card provider FleetCor Technologies (FLT) recently delivered its biggest quarterly earnings gain in years. Its Q1 profit jumped 50% to 90 cents a share — the biggest jump since a 74% increase in the last quarter of 2010.

FleetCor’s sales grew 32% to nearly $193.7 million in the latest period, the eighth straight quarter of double-digit growth.

The stock has formed a three-weeks-tight pattern with a buy point at 85.66.

The IBD 50 rallied 2.7% for the week, topping the Nasdaq and the S&P 500.

TripAdvisor (TRIP) and Santarus (SNTS) were the week’s biggest winners. Both hit all-time highs.

Financial pro Lance Lipset by his Basking Ridge, N.J., office, which he opened after leaving Merrill Lynch. View Enlarged Image

Special Report: Financial Advisers’ Guide

Trading a job at a giant corporation for a tiny firm often means a big pay cut. For Leo Arms, it was anything but.

Arms left his brokerage job at Morgan Stanley in November 2011 to start his own firm, Thomas Leo Advisory, in Minneapolis.

“I’m making a little bit more than I was at the wirehouse,” he said. “But my clients are paying significantly less.”

He is also happier. “I run my business in my own way. And I’ve eliminated the conflict of interest that goes with depending on commissions to earn a living,” said Arms, whose income percolates from fees on client assets, not commissions on transactions.

Arms’ successful move is the dream that is prompting many advisers to do the same thing. They are migrating, usually away from wirehouses, the nickname for big, full-service brokerages.

That’s keeping the industry in flux.

The changes affect retail clients as much as their advisers. A new survey by IBD finds that investors worry about traits like trustworthiness and investment performance.

“Clients don’t want to become a victim of the next Bernie Madoff,” said Tricia Rothschild, head of Morningstar Inc.’s adviser solutions group. “They don’t want their money to sit in zero-interest accounts. And they don’t want to overpay for advice.”

Adviser departures from wirehouses remind clients of the collapse of Lehman Bros., says Scott Smith, a director of research firm Cerulli Associates.

Such moves might also remind clients of scandals that wounded wirehouses in recent years. Strategies such as peddling securities whose risks were not fully disclosed triggered lawsuits and regulatory sanctions.

Some advisers have moved on because they weren’t producing enough business — they got drummed out of the wirehouses. Others left for greener pastures and more freedom.

Compared with the peak year of 2005, wirehouses had only 51,450 advisers as of the end of 2011, a decline of 20%, according to the latest data from Cerulli Associates.

In contrast, the ranks of registered investment advisers (RIAs) surged 31% to 28,714.

RIAs customarily work out of local advisory firms.

The ranks of independent advisers who are also licensed as brokers have swollen even more dramatically — by 59% to 47,171.

They are taking clients and assets with them as they relocate to smaller firms.

Wirehouses hemorrhaged 6.7% in adviser assets from 2007 to 2011. Cerulli projects they will bleed an additional 6.9% in assets by the end of 2014.

Special Report: Financial Advisers’ Guide

Financial advisers want to help their clients worry less, but just like anybody, they have their own concerns.

Advisers say their top challenges these days include compliance issues, attracting and retaining staff and evaluating new tech tools.

Sheryl Garrett says advisers should expect to put more money and energy toward compliance. She’s the founder of the Garrett Planning Network, a group of fee-only financial planners.

“Plan to spend more from this year going forward,” she said. “In the long run, I think it’s the right thing for the end user.”

One factor has been the Securities and Exchange Commission giving states the responsibility for regulating midsize advisers and money managers. She notes that with states bucking up to take on this job, strategic partnerships are helping the industry cope with higher compliance costs.

Michael Garry says the uncertainty around regulatory issues is a particular concern. He’s the owner of Yardley Wealth Management, a Newtown, Pa.-based provider of fee-only services.

Fog Of Legislation

Garry points to a recent bill that would have given the Financial Industry Regulatory Authority oversight of advisers. “The bill last year never cleared committee,” he said, “but it wasn’t that far away from it being that my competitors’ self-regulatory organization would oversee me, and I wouldn’t be a member of it. That’s crazy.”

Another regulatory unknown is how the fiduciary standard — a high rung that applies to registered investment advisers — might get extended to all advice givers as part of the Dodd-Frank Act. Others in the financial service industry have been held to an easier suitability standard that doesn’t call for minimizing conflicts of interest. Garry expects a “watered down standard,” while Garrett expects the fiduciary standard will eventually be applied to all advice givers.

Advisers also say recruiting and retaining staff can be tricky. Cheryl Holland, founder of Abacus Planning Group, says her firm has to deal with a relatively small pool of potential employees because of its location in Columbia, S.C.

“It’s not like we’re growing like Google, but we are growing. We might hire two or three people a year,” she said.

Holland says her firm generally has to build up the knowledge base of new employees, rather than expect them to come fully trained. Abacus is benefiting from baby boomers’ ongoing focus on retirement and other trends, but that means the firm must add staff and faces other challenges in managing its growth.

 View Enlarged Image

Special Report: Financial Advisers’ Guide

When it comes to choosing a financial adviser, being able to sleep at night outranks everything else, even investment performance.

So say investors in a new IBD survey that plumbs how they feel about financial advisers.

An overwhelming 89% of investors who have used financial advisers or plan to in the future rank trustworthiness as very important in selecting an adviser. That’s nearly 15 percentage points ahead of the No. 2 factor — proven investment performance, ranked crucial by 74% of those surveyed.

Among investors who no longer use an adviser, many cited poor performance or just felt they could do better themselves. The third most common reason was lack of trust.

“The jerk talked me out of buying Google (at its) IPO,” one respondent said.

Another said, “I told him to go to cash,” apparently in reference to the start of 2008′s market meltdown.

A third said, “Too expensive for poor returns.”

A fourth replied, “He went to jail, not kidding.”

Experience is the third most important factor in selecting an adviser, according to IBD’s survey. A solid 69% of respondents rank it very important.

Other financial adviser characteristics that more than 50% of investors rate as very important, or 5 on a scale of 1 to 5, are independence, or not being required to offer a firm’s products or recommendations; communication, including in-person, phone, mail and social media contact; investment strategy; and active management, or selecting investments instead of just placing assets in mutual funds or with outside money managers.

The survey, conducted April 17-19 on IBD’s website, drew responses from 1,283 investors who have used financial advisers or expect to hire one.

Among respondents who provided their annual household income, 29% earn $75,001 to $125,000, 37% make $125,001 to $350,000 and 10% more than $350,000.

For those who reported their portfolio size, 33% said they have $100,001 to $500,000 in investments, 24% have $500,001 to $1 million and 25% more than $1 million.

Some survey findings reflect long-held truths about how people choose advisers. Referrals — presumably by friends and family — remain the most common way to find an adviser, with 47% of respondents saying that’s how they hooked up with their adviser.

“Regardless of how a client and adviser find one another, the onus is on the adviser to spell out how they will work with one another, what the planning process will include and possibly exclude, the adviser’s method of compensation and the frequency of communication,” said adviser Lance Lipset, who left Merrill Lynch a year ago to open his own advisory practice.

Theresa Chacopulos of Wells Fargo says she and fellow advisers get so close to clients, “We see gambling, drugs, eating disorders, alcohol.” View Enlarged Image

Special Report: Financial Advisers’ Guide

Like many service providers, financial advisers seek to add value. Expanding their role to accommodate all sorts of client needs is one way they do that.

From helping clients buy cars to referring them to social service agencies, advisers are increasingly positioning themselves as full-bore problem solvers.

They may provide planning that affects many aspects of their clients’ lives — with wealth management at its core. “I tell our clients that anything with a dollar sign or a percentage sign, we can help you with it,” said Warren Ward, principal at Warren Ward Associates in Columbus, Ind.

Ward, 66, vets retirement communities for clients’ parents, fills out financial aid applications for their children and negotiates bank loans on their behalf.

Ward describes many of his clients as “young, middle-age parents” concerned about funding their kids’ education. So he learned how to complete FAFSAs — free applications for federal student aid — to streamline the process for them.

Comforting

Ward even assists clients after losing a loved one. Once he needed a death certificate to file a life insurance claim for a client. Rather than instruct his client, a grieving widow in her 40s, on how to pester the coroner to issue a death certificate, he spent a week handling it.

People who share their financial lives with their advisers often open up more intimately. They might discuss travails that they withhold from their closest friends. “We see gambling, drugs, eating disorders, alcohol,” said Theresa Chacopulos, a senior financial adviser with Wells Fargo Private Bank in Scottsdale, Ariz. “We run across these kinds of things often. We stay connected to the community, so we have a lot of community resources we can offer to our clients.”

As more midcareer professionals arrange care for aging and ailing parents, some financial advisers lend a hand. They might suggest adult day-care programs or assisted-living options.

Advisers are well positioned to monitor a senior’s spending habits, especially if adult children are worried about their parents’ vulnerability to scams or dementia-induced spending sprees. By tracking large cash withdrawals, an adviser can flag expenditures and involve family members when appropriate.

The broadening nature of their role affords advisers a window into a client’s private life.

By helping navigate insurance matters, advisers can identify a client’s looming health concerns.

By scrutinizing cash flow and tax returns, advisers can spot addictions or other trouble signs.

Special Report: Financial Advisers’ Guide

Financial advisers cannot build a career overnight. They can expect long, hard years of laying solid groundwork.

Seasoned financial advisers warn that the first three years will test professionals’ fortitude.

They probably won’t make much money at the outset. They’ll work nonstop and suffer setbacks. And no matter how well they promote themselves and hunt for clients, rejection is a constant job hazard.

“I’ve found by putting your clients’ interests first, you get people saying nice things about you,” said Kevin Bernzott, chief executive of Bernzott Capital Advisors in Camarillo, Calif. “That’s tough when you’re getting started with no track record and little in the way of assets under management. Your reputation is all you have.”

Bernzott, who founded his firm in 1994, didn’t just put clients’ interests first. In some cases, he took extraordinary measures to accommodate them. One of his clients asked him to help his parents manage their funds. The young man’s father told the adviser, “Whatever you do, don’t sell my CDs or I’ll get a penalty for early withdrawal.”

Bernzott agreed. But a few weeks later, the father called in anguish.

“You sold my CDs,” he told Bernzott. “I told you not to do that!”

It turns out the father did not own CDs; instead, he had mutual funds with back-end loads. Bernzott tried to explain the difference to no avail. He contacted the son, who sought to reassure Bernzott by telling him, “Don’t worry about it. Dad will never understand.”

Nevertheless, Bernzott sent the father a check for $2,000 to reflect the back-end loads. And he apologized. “That was around 17 years ago,” he said. “The parents are still clients. I’ve earned far more in fees over that time” than $2,000.

He admits it was hard to authorize that payment. But “doing the right thing from day one is one of our core values,” he said.

His advice for other financial advisers: As you build your business, maximize every hour. Beware of letting salespeople monopolize your day, whether they’re pitching software or office supplies.

The need to safeguard every hour leads some fledgling financial advisers to outsource parts of the business operation, such as administrative tasks. Farming out back-office activities can let advisers focus on cultivating client relationships.

“For the first couple of years, I’m making no money,” recalled Scott Leonard, a principal at Trovena, a wealth management firm in Redondo Beach, Calif. “To pay someone else to do back-office stuff was hard for me, but when I did, everything clicked. Not having to do a day’s worth of data processing freed up my time.”