“Don’t Buy Tips”

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I don’t envisage this being a particularly long blog - it is a simple point really so a few paragraphs should cover it. I often see and hear the comment “Don’t buy Tips” and I was thinking about this the other day and came to the view that it is a lot more nuanced than that simple phrase allows for.

The first thought I had was that everything gets Tipped somewhere - i.e. in Investors Chronicle or Shares Magazine, or Mail on Sunday, or Techinvest, or Small Company Sharewatch, or Red Hot Penny Garbage, or Questor in the Telegraph or in the Times or whatever - there are countless sources of ‘Tips’. On this basis, if you were to apply the “Don’t buy Tips” ‘rule‘, then you wouldn’t really be able to buy anything and your Investing Universe would be extremely tiny !!

I then realised that there are perhaps 2 distinct sorts of Tips - firstly those like I mentioned above which are often well worded (although always far too short) descriptions of the Stock and the attributes and Risks/Attractions of the Business with Valuations and suchlike, but then there are other ‘Tips’ which are really just some bloke down the Pub saying “you ought to buy XYZ mate, cos it’s going to the moon !!”. These sort of useless Tips can come from Taxi Drivers, Bulletin Boards, your Hairdresser, some bloke at the Football Club, a mate at the Gym - you get the picture. The essential ethos of such Tips is that you really should buy them because your mate/contact recommends it and no doubt will tell you he/she has put all their Money in it - and gullible, inexperience Newbie Investors are particularly susceptible to such dangerous Bandwagons.

Remember, Bitcoin topped out just when my Cleaner came into my House and told me that her Taxi Driver had just said to her “Buy Bitcoins”…….

I think the best way to deal with the latter types of Tips is to politely nod your head and say you will look into it and then instantly wipe your Brain clean of any memory of it and go and investigate a proper Company which makes money and has a Track Record of achievement (to encourage such beneficial forgetfulness, you could quickly down 8 Pints and perhaps that will erase any memory of anything). If you really can’t forget it, then make a list of all the cr*ppy Tips you get down the Pub and make sure you write at the top of the List - “Never Buy any of the Stocks found underneath this text”.

With the former type of Tips, I really like them as a route to Ideas and further Investigation/Research/Analysis/Evaluation. Usually the Tip will have a concise description of what the Company does and some idea of the Valuation in P/E Terms and Dividend Yield and any Debt etc. - I can quite often rule things In or Out just by these limited bits of information. The Tip will usually include a few Risks to be aware of which is helpful and usually will mention some sort of Catalyst which might get the Share Price moving and often there is a Chart which gives an indication of the Trend very quickly. More often than not, I will then look quickly on the ADVFN app on my Fone and see how the Charts look in various Timeframes etc. and I might have a quick read of the latest Trading Update or Results etc.

Obviously the usual Loss Making AIM rubbish is best avoided whatever the source it comes from - it is very rare that these things make good Investments although for Traders with a Short Term, In/Out, mindset they can make very nice Trades.

Often you get used to reading Tips from a certain Tipster and you get a feel for what he/she does well and what is not so good. I really like Simon Thompson in the Investors Chronicle and over the years I have made a lot of money buying stuff he has tipped - but it is important to realise that his Resources Tips tend to be awful and avoid anything that is based in China or India or something - in other words, the usual ‘Wheelie Bin’ ‘Stocks to Avoid’ rules apply (see the ‘WheelieBin’ Page on my website). I also find he has a strange habit of ‘Under Targeting’ but once you realise this you can do your own Targets etc. anyway.

Something Simon is excellent at is bringing recent IPOs to a wider audience - if you can get in on these early then a lot of money can be made. There is a common perception that IPOs are always bad news but I do not agree with this at all - many have turned out superbly and if you go to the ‘Related Blogs‘ bit at the end of this one you can find a Blog I wrote on the subject of IPOs a while back.

Another consideration is the Timescale concerned. A Stock that may be an excellent Stock for the Long Term with an outlook of perhaps a 5 years Holding Period, could look pretty ropey in the Short Term because it has had a strong run up and got itself Overbought - as always your own personal timeframe for Investing and/or Trading is a crucial consideration.

With that in mind, one of my favourite sources of New Ideas is the Investors Chronicle - many people give it stick and all that but I personally find it a very good read and what they say about a Stock from the kind of Investment Horizon I have of being pretty Long Term, tends to be fairly near my own view. I reckon part of the reason I really like it is because I spend so much of my time looking at either a Tablet Screen, a Fone Screen, or a Laptop Screen, or a Monitor etc. and the beauty of Investors Chronicle is that I can go out in the Garden with it in the Sunshine and in a very relaxed manner I can steadily read about particular Stocks and I have time to mull things over and really think deeply about whether or not something could make a good Investment for me. I am very Old Skool !!

I would say I agree on perhaps 90% of their Calls but remember this is very much linked to my own timeframe. Because I have a Long Term view and won’t be rushed into anything, I have got into a useful habit of giving each new Paper Copy of Investors Chronicle a quick read through on the Weekend just after it comes out and then I probably revisit it in a few Weeks and by that time anything that was tipped by them and jumped up in the Short Term, has often dropped back and got more ‘Buyable’ if I decide I do fancy a nibble. Sometimes it actually amazes me at how I can read about a Stock in an Investors Chronicle that is perhaps as much as 4 weeks old (yes, I do get very behind with my reading sometimes !!), and yet the Price will barely have budged since the Article when I actually check on the current situation.

I also find Shares Magazine very good when I get to see a copy of it but the drawback is that it is not available in a Paper form these days but it is worth reading and looks pretty good on my 10” Tablet.

So, that’s it really. Summing up, Tips can be very useful and you should use them as a route to further in-depth Research and as a source of Ideas - with care, they can help your Investing success a lot. But as always, don’t rush in and make sure you think things through properly and don’t forget to think about how the Stock in question will fit into your existing Portfolio and consider in particular the phrase - “What does it bring to your Portfolio Party?”

Cheers, WD.


Related Blogs:
This one I wrote ages ago but it is very relevant to this discussion:

http://wheeliedealer.weebly.com/blog/wheelies-triage-process

And this one is about IPOs and which ones are more likely to work for you and which ones won’t:

http://wheeliedealer.weebly.com/blog/wheeling-through-the-ipo-minefield

This one contains info with ScreenShots of the ADVFN App - it is FREE and I strongly recommend it:

http://wheeliedealer.weebly.com/blog/reporting-end-of-day-numbers-and-the-advfn-app