When buying a new property, the wise buyer does her research. She checks the current prices in the
This kind of thoroughness in a shopper covers even small purchases like
So, why is it when this same wily shopper becomes an investor and puts money on a stock (usually a lot of money), all she relies on is a “hot tip” from an insider? How does she plunk in the cost of half a house on such
First-time investors, sometimes dismissed as “desperate housewives,” rely heavily on hot tips. They even insist that their brokers give them some. Even when these otherwise savvy shoppers are sent the research files with graphs showing the ups and downs (mostly the latter) of the particular stock, their usual thoroughness in getting the best value for their money seems to be left by the wayside. On the basis of unconfirmed plans of pending acquisition, stock buy-back or a follow-on offering, a newly discovered mine site, or the investment of a highly regarded businessman in this company, the newbie jumps in and buys a particular stock.
Nothing is more dangerous for a new stock player than early success based on a hot tip.
Insider trading is a variation of insider information which drives hot tips. In our milieu, those using and dispensing insider knowledge work directly for the subject company, using
The way that individuals pick stocks or companies to invest in seems even more casual than the way they choose shampoos. At least for the stuff they put on their head, they check the label and note the contraindications that apply to their scalp. One only has to hear about yet another scam that has taken in supposedly wealthy (and presumably financially informed) investors to appreciate the need for personal research. Manila has its own share of Ponzi
For individual stock picks, it is good to go with a company outperforming its market.
With the rise of “private banking” units in local banks where high net-worth individuals, perhaps with investible funds of ten to fifteen million pesos, are targeted and accorded a portfolio adviser offering services beyond CASA (Checking Account/Savings Account). A report (complete with pie charts) on how the client’s placement with the bank is doing is periodically submitted. Even here, the client is asked about his investment goals, whether growth, high risk/high reward or a conservative fixed income stream. But is it also enough to leave everything to the expert?
Nothing is more dangerous for a new stock player than early success based on a hot tip. Quick profits from an IPO or a tipped stock with business plans but no cash flow prospects for the next eight years endow the inexperienced investor with beginner’s luck and a growing faith in unconfirmed tips. The danger increases when she manages to outperform research-based investors… in the short term. She is lulled into thinking that she needs neither expert advice nor any research at all, until the market imitates the gravity-succumbing antics of a falling knife, as it did in the last half of 2008.
There is no such thing as having too much information on a stock that one wants to buy.
Maybe we should take to heart a few lessons. Here are some things to note.
There are really no experts. Even if there are, they usually do not agree with one another. So, even if one tries to benefit from the experience and expertise of market players, which one does one pick and surrender one’s
Pick the industry leader. For individual stock picks, it is good to go with a company outperforming its market. This can be in terms of market share or profitability, an undervalued price/earnings ratio or revenue growth. After picking the sector to invest in, say property or financial services, it is a matter of selecting the top performers
Attend investor briefings. Most listed companies have a full-time Investor Relations (IR) unit which deals with researchers and provides statistics on earnings, major challenges, market share, strategic businesses and changes in management. Attending these sessions gives you a feel of the quality of management and the firmness of business plans. These stats are also found
Read up on the company. News items in the business papers, interviews of the CEO, and company reports of the stockbrokers provide many insights into the company that can inform the investor enough to make intelligent decisions. In fact, the absence of information, or the frequent postponement of stockholders’ meetings, or delayed releases of financial performance are all warning signs and signal a sell for such a company.
Shopping is good training for the investor who wants to get the best deal for herself. Looking before you leap is sound advice for the discriminating shopper.
There is no such thing as having too much information on a stock that one wants to buy. Even if the information is negative, at least the investor knows when to sell and cut losses.
It should be back to investment basics and
Shopping is good training for the investor who wants to get the best deal for herself. Looking before you leap is sound advice for the discriminating shopper. Of course, you can also just hang on to your cash, or whatever’s left of it.