Beware of stock tips! No matter how convincing or profitable they may seem, they will eventually lead to calamity.
Ever hear a juicy tip? The kind that you know is going to make you money?
I have, too. More than a few times. Except, instead of making a killing from them, I usually end up going bust.
Ever hear a juicy tip? The kind that you know is going to make you money?
I have, too. More than a few times. Except, instead of making a killing from them, I usually end up going bust.
Hey guys, Alan here with the Marketeers. I was reading a book on Jesse Livermore recently, and the subject of stock tips came up around the office. So, I thought I'd write a little blog post on the subject.
Do you listen to tips?
I don't. Jesse Livermore doesn't. Most of the greatest stock market traders don't, either.
So why do it?
Because it offers the allure of making a quick buck. Let's be honest here, you would probably much rather make money by clicking the "buy" button when someone tells you to than pouring over pages upon pages of historical financial statements and charts.
But listening to stock tips won't make you money in the long run. Fundamental analysis, technical analysis, historical precedent and doing your own research will.
Back in Jesse Livermore's day, tips came in the form of a buddy, colleague, or associate telling you some information they had on a stock.
Nowadays, the game's a bit different. We have the internet. If we want to make a "quick buck" in the market, instead of asking a friend for a tip they had, we turn on Mad Money, CNN, Yahoo Finance, MSN Money, etc. etc. With most financial media outlets, you have "pundits" giving their "expert" opinion on individual securities and the markets. These are the stock tips of the 21st century. Happy birthday.
These "gurus" are pretty convincing. With millions of people following them, their opinions on stocks are considered worthwhile and valid. But, if you've read any of our other articles, you would know that we're not big fans of opinions.
And the darndest thing is, they don't even have to tell you to straight up "buy" or "sell" a certain stock. All they have to do is mention it, state an opinion on it, and millions of people are influenced. Even if you don't buy into it, their opinions can consciously or unconsciously influence you. I'm not trying to get into psychology here, but I'll give you an example of a time when I *cringe* was influenced by a tip:
Costco. (Ticker symbol COST). I had read in the news all things good about it. It paid its employees a high wage, was raising it's dividend, the CEO was one of the best, etc. etc.
So, I looked into the fundamental figures and thought "Eh, not too bad, I guess I'll buy."
Well, long story short, I was shaken out of my position and cut my losses at 8%. That's actually kind ofridiculousconsidering the chart looks like this:
Yeah. With a graph like that you have to try pretty hard to lose money. But I did.
If I had done my own analysis, I would have bought on a pullback to it's moving average line, and held on to it in a more long-term fashion.
But no. I was influenced, whether I liked it or not, by the warm "fuzzy" news I had just read about the company and purchased because I "had" to have a position in it.
Don't let my stupidity happen to you.
Do your own analysis. Come to your own conclusions. Keep your own investment counsel.
It's true that some news is good. For example, earnings reports, whether company management is buying or selling their own stock, stock splits, etc. But it can be grossly overdone.
So, whether it's a friend, family member, a good looking guy on the news, or Warren Buffet himself, beware of stock tips.