Investigate
Those Stock Tips!
by Sy Harding
Street Smart Report
An
old market adage says that bulls and bears aren't responsible for as many
stock losses as are bum steers.
Many
investors do depend solely on hot tips for most of their investment decisions.
It can be seen on TV financial shows where the most popular features are
the call-in `Buy-Sell-or Hold' segments, and brief interviews with `gurus'
who give quick one-sentence assessments of a half dozen stocks in two minutes.
It can be seen in the proliferation of magazine rankings of mutual funds
that provide one or two lines of information, based on past performance,
with little regard to how the performance was achieved or whether it's likely
to continue in the future. Individual investors have been made so confident
by the bull market that stock tips are passed around among friends and acquaintances,
even strangers, as freely as potato chips at a cookout.
However,
if you're going to invest primarily on tips, at least investigate those
tips before committing your money. The lack of probing is sometimes staggering.
Last
year I met a guy (at a cookout) who insisted I should be invested in HBO.
He had recently bought the stock on a tip that it was a very profitable
company, and he was touting the idea to me on the basis that "They
have better movies than any of the other cable channels." I didn't
have the heart to tell him that what he owned was HBO & Co., the large
health-care information service company, a great company, but not the TV
movie channel (which is a wholly owned subsidiary of Time-Warner).
A
few years ago, TCI Communications, the huge cable company, became the subject
of excited merger talk. The company's stock traded under the symbol TCOM,
and it started to soar. At the same time, an entirely different company,
Transcontinental Realty Inc., trading under the symbol TCI, saw its stock
soar for several days on four times its normal volume. The company's management
was dumbfounded until someone discovered investors were piling into the
stock thinking it was the cable company everyone was so excited about.
How
should we go about investigating a stock tip?
Well,
obviously we need to at least make sure we're buying the company we think
we're buying. Not as simplistic advice as it seems, considering that many
investors will plunk down $25,000 on a stock tip, where they could conceivably
be hurt, with less thought and time than they give the selection of a TV
set, or an automobile, where even the worst choice will probably work out
just fine.
Here
are a couple of suggestions.
If
the recommendation is coming from a full-service broker, ask for the firm's
research report from which he or she is probably quoting.
The
broker may be just telling you the positive side of the picture. The research
departments of most brokerage firms put out reports that are considerably
more balanced than many investors realize. When investments go bad, and
a percentage will, the firms don't want their own written research to support
legal claims that they provided only one side of the picture.
It's more difficult to get comprehensive
research from discount brokers. After all, the total elimination of research
departments was one of the cost-cutting moves that allowed them to become
discounters in the first place. But some, recognizing the need, have begun
to provide at least limited information on some stocks.
Valuable
information can also be obtained directly from the company you're interested
in by calling their `investor relations' office. They'll gladly send you
their latest annual report, quarterly financial statement, and copies of
their recent filings with the SEC.
If
you use the Internet (and doesn't everyone?) log onto sites like Barrons.com
and Cnnfn.com. They allow you to check the latest financial news headlines
on any company you're interested in. On Barrons.com you can order free research
reports on hundreds of companies. They mail them to you the next day. Even
on smaller sites like my own, you can click on `Online Quotes', which takes
you to a free segment of the site, where you can look up stock symbols,
obtain the latest headline news about the company you're interested in,
and even have charts pop up that show you the stock's trading pattern over
recent months to tell you whether it's currently in an uptrend or downtrend.
There's
no need to act blindly on hot tips.
Editor's Note: Sy Harding is president of Asset Management Research Corp.,
169 Daniel Webster Hwy., Ste 7, Meredith, NH 03253, publisher of The
Street Smart Report Online at www.syharding.com, and the Street Smart
Report newsletter published every 3 weeks for $225 annually. A daily
Hotline is also available twice each day 9 a.m. and 7 p.m. via 1-900-820-2020
(2-3 min. messages @ $2.40/min.) Sy Harding is author of Riding the BearHow
to Prosper in the Coming Bear Market available at most book stores.
Mr. Harding is consistently ranked a Top Stock Market Timer, and Top Gold
Timer by Timer Digest.
