Stock Market Tips – The Good, The Bad and The Ugly

Do Stock Market tips work?

In 1994 I made a windfall profit of over $7,000 from index options. I was barely out of investing ‘nappies’ then, but in my euphoria I thought I was the next Warren Buffet in the making. In those days, I was hot on Stock Market tips. After what was for me an unprecedented profit, I believed that whatever I touched would turn to gold. Don’t laugh!

I was on a roll, and quickly bought options in a company that I had every reason to believe was heading for the stratosphere. I invested most of my $7,000 profits. Two weeks later I closed the trade at a big loss. Luckily, I had learned the value of stop losses; otherwise my loss would have been much worse.

What really upset me wasn’t so much the money that as lost as the manner in which I went about losing it. The one and only reason I made the investment was because I heard a news report about the company’s recent success and how the company’s share price was bound to go higher. That was the only thing I needed to hear, and off I was like a dog at the races.

I learned the hard way that Stock Market recommendations do not work. I think they are bad, and dangerous to ones financial health. If I had my way, giving or receiving tips would be classed as a federal offense. Yes.

Is there a good side to Investment tips though? Yes, but only if you use them as a starting point to do your own analysis.

If my very good friend who is a Fund Manager phones me tomorrow and tells me to buy shares in General Motors (GM) because they are unbelievably undervalued, I would say, “thank you very much”. When I get home, I will do my own research. If my research confirms the tip my friend gave me, I would then proceed to happily invest in General Motors. That is the good side of Stock Market tips.

Unfortunately though the limited benefit of tips is by far outweighed by their ugly side.

Many a time, especially on Internet forums, Investment tips are used to defraud the unsuspecting public. This usually happens with penny shares in what are popularly known as ‘pump and dump’ operations.

Typically con artists would buy a significant stake of a penny share, and then under the guise of offering Stock Market tips, they promote (pump) it heavily on bulletin boards and other forums. They do this to whip up a buying frenzy, and then quickly sell (dump) all their shares to their victims who scramble to get in on the act.

The con artists smile all the way to the bank with huge profits, and start the process all over again with another penny share and a different set of innocent victims.

Do not let yourself be one of their victims.