Following Stock Tips (Good or Bad?)
This weekend I will be sharing and evaluating on above topic. I realise that when everyone around you is it at the workplace, forum or social media is chatting some stocks, it can be hard to resist investing in that stock. To me, following tips is also an art and must be selective. Some of us may envy those who have doubled his money, like in AEM, Best World or UMS due to recently run up.This could be due to the fact that analyst report, bloggers, tipsters, social media or even newspapers are promoting a specific company or sector as “the next hype.” Like after bitcoin, the new "in thing is Etherium. However, do note that no matter where your stock tip came from, invest your money right on the spot can all too easily have a negative consequence which I am going to explain in depth.
I have analysed that investing blindly in the stock tips you receive is almost always generally a very bad idea, for a variety of reasons. The first reason that I concluded is that most “in play stocks” became a hot stock simply because of retail investors buying on hope, and to me "hope" is buying into an idea of a company and it will materialise and prosper in the future. Unfortunately, financial viability and likeability are extremely different from each other. We can punt "tip stocks" using technical or momentum play, but most of the tips in the market are on companies that we need to take a bet if we want to keep long term. I need to emphasise a fundamental point that a lot of stock investors who follow tips and get burn. I have concluded that if a company cannot come up with a business plan that is sound, and the stock was pumped up, the end result is that the company will not likely not be very profitable in the end, and it does not matter how many people invested in their company, most who buy on "hope" will lose their pants. Just look at the technology bubble that surfaced in the 90’s and burst. It was at that time that it was extremely easy for any type of internet business to get funding, and I have US contacts who became a millionaire in a few months and lost it all and never came back up. Those tech stock that was listed and the bubble burst did not have strategic long-term plans that were concrete to become profitable. Many became rich and Venture funds invested in them due to a red hot tech stock market. That is why I do follow people tips, but I do my own study as well and ensure the fundamental and business model are sound prior to entering. In fact, those stocks that got poor fundamental and pump up and you hear tips telling you to buy usually are more for hit and run and not for holding.
My advice is simple. If you want to follow tips, must have a sound contingency plan. Stocks that you think the business model is not sustainable and that the company is rubbish based on fundamental after studying the company's financial, my take is either you do not invest in them or set a stop loss and take profit point. For stocks that you hear that you think it has got a good business plan for the future and you buy the idea or its fundamental such as its financial is good, then you can consider keeping the stock long term. Unless the stock tips are from a very good friend who never harms you and you make consistently from his sharing, it is highly likely that the “Hot tip” you receive will come to you, already cold. This mean you from the chain of tip sharing, you could be on the last wave before the bubble is burst. I believe many got this feeling and holding on to these rubbish stocks in your CDP. One good rule of thumb is that if you have heard of this stock tip from many sources, it is extremely highly likely that others have heard the exact same tip. This is a red flag to take note as this will mean that the stock price has already been adjusted to meet these expectations of the tip, resulting in an inflated stock price.. If the BBs start to sell out, this will cause great losses when the price is readjusted to meet the true value. A classic example was Asiason and Blumont.
It is extremely important that you be extremely aware of all the risks that are significant and real. It is not a good idea to follow most of the stock tips you receive, but trading stock can be fun and rewarding for anyone who has the ability to afford the risks that are taken. In Investingnote we have people who recommend stocks well consistently. However, please do your own homework and set important take profit and stop loss points. One should always keep your principals in investments smart. Also, do note blame others if you follow and lose as if it is a sure win thing, I am sure the person who recommends if he knows himself will dump his whole fortune into the stock. In life, there is no sure thing in investing. Every investment got its risks and reward and we always remember that we enter with our eyes open. Just learn and do not repeat the same mistake as money is hard to earn nowadays.
Have a Happy Fathers Day to all! For further evaluation, discussion and debate
Do note that this thread is not to induce any buying of selling. It is just a sharing based on my investment philosophy. Please seek your financial advisors if unsure. There is no right or wrong on this topic.