Stock tips are like a seductive temptress, luring you in to take a bite out of a forbidden fruit.
It doesn’t matter if they’re coming from your Uncle Buck who “knows a guy, that knows a guy, that knows something” or if they come from an “expert” on your television screen. The promise of quick profits is too much for most to ignore.
However, there are several reasons why you should avoid following stock tips and instead make investment decisions based on your own due diligence.
#1 Speculation Leads to Regret
First, stock tips are often based on speculation rather than solid data and analysis.
Back in 1934, the late, great Benjamin Graham defined what an investment operation entails:
"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.”
Stock tips offer no such assurances, as they are largely based on flimsy guesses or intuition, rather than on in-depth research and analysis of a company or industry. This means that they are likely to be unreliable and could lead to regrettable decisions…like that late night at the bar.
#2 Trying to Time the Market Will Give You A Tummy Ache
Second, stock tips are usually only relevant for a short period of time. So, even if a stock tip is accurate, the market is notoriously fickle and what was a good investment yesterday may not be a good investment today.
This means that following stock tips is more akin to gambling than investing, as you never know when the market will shift and cause the tip you received to become irrelevant.
#3 Don’t Spend your Rent Money on an Investing Newsletter
Third, following stock tips can be costly. Many stock tipsters charge high fees for their advice or require you to buy a subscription to access their tips.
These costs can add up quickly and eat into any profits you might make from following their advice. Additionally, stock tipsters are infamously biased as they may have their own agenda for promoting a particular stock and their track record is often cherry-picked to present only their biggest wins.
#4 No One Owns a Crystal Ball
Fourth, it's important to remember that no one can predict the future. Stock prices are affected by a wide range of factors, including global economic conditions, political events, and Reddit. All of these factors can change unexpectedly, making it impossible to predict how a stock will perform in the future.
Instead of following stock tips, it's important to do your own research and analysis on businesses you understand. This includes looking at a company's financials, management team, industry trends, and competition.
By doing so you will be able to have a better understanding of the stock and make more informed decisions on when to buy, sell or hold.
#5 Nothing Beats Hard Work
In conclusion, stock tips are tempting, but 9 times out of 10 they are based on speculation rather than anything tangible.
They are usually only relevant for a short period of time, can be costly and no one can predict the future - not even your Uncle Buck. This is why it's important to always do your own due diligence before making any investment decisions.