From INVESTOR'S BUSINESS DAILY
Tips are fine when you're seeking a good restaurant or a movie to see. But when it comes to investing in the market, a hot stock tip can make you feel like you've landed in a cold shower.
Investing is already an uncertain venture. Putting money on the line solely on the basis of someone else's opinion is not a smart move. Doing so means that you're really flying blind.
Trading on tips is dangerous. A few may pan out. But those that don't can burn you badly..
At times, a tip about a company reporting better-than-expected earnings, the upcoming launch of a revolutionary product, or a merger announcement may come true. Still, there is no guarantee that the stock will move and make you money..
The ironic thing is that stocks can still go down despite reporting better-than-expected results or unveiling a new product.
Stock tips can come from friends, colleagues, family members or some commentator on TV. They may come with good intentions, but one must not act on their advice alone. At the very least, sometimes these can be a starting point. You still have to do your own research.
Tips can also come from newsletters and advisory services. Some of these are notorious for touting penny stocks, which should be avoided at all costs.
Many times, these services boast returns of 100% to 1,000% or more from some unknown mining company that's on the verge of finding huge gold deposits in outer Mongolia.
Tips are usually based on rumors which have no sound basis. Other times, tips can be inside information. Acting on inside information can land you in jail.
"Many people are too willing to risk their hard-earned money on the basis of what someone else says, rather than taking the time to study, learn and know for sure what they're doing."
Remember the adage "Give a man a fish and he'll eat for a day?" Well, if investors keeps taking tips, they may be eating something other than fish. The latter part of the famous saying should be followed: "Teach a man to fish and he'll eat for life."
In order to have longevity in the investing game, people have to learn to fish for themselves. This means learning a tried and true investment system. Simply put, investors have to do their own homework. There is no shortcut for success.
Investors have to study the general market to know whether they should be buying stocks or sitting on the sidelines. They need to find companies residing in the top-performing industry groups and have market-dominating products and services. These firms need to have solid earnings and sales growth and be under accumulation by professional investors such as mutual funds and hedge funds.
