Financial Planning | Investing | Personal Finance | Article
Why You Shouldn’t Trust Every Stock Tip Out There
by | 7 Oct 2021 | 4 mins read
One way or another, we are all trying to get rich somehow. We want to be able to buy things without having to worry about what we can afford for the rest of the month, and of course to be able to retire comfortably. But that desire to make as much money as possible might leave us vulnerable to things like investment scams, or an unreliable stock tip or recommendation.
It might be tempting to follow and chase down every lead, hoping it’ll lead you to your pot of gold. But it’s always better to be prudent and cautious, especially when the stock tip is coming from someone you don’t know, or trust.
Here’s how to suss out shady stock tips and separate them from legitimate, research-backed recommendations.
No one can guarantee you returns – if they do, then they’re lying
No matter where you’re getting your stock tip or information from, the most important thing to remember about investing is there is no such thing as a guaranteed return. So, if someone tells you that you’ll definitely make 20% returns, or that “no one has made less than 50% profit”, you need to take this with a huge fistful of salt.
Even stock advisor platforms and websites such as The Motley Fool, which are very transparent with their data and research, do not give investors a 100% guarantee on earning returns.
If “everyone else” has made it rich, be suspicious
Also known as social proofing, a person might recommend a get-rich-quick scheme to you on the basis that many other investors have profited from it. We all know FOMO can pack a punch and make us want to hop on the bandwagon, which is what makes this tactic especially effective (and therefore dangerous).
A sound stock tip should be based on real research and hard numbers, like how well a company is performing, instead of “proof” that others are enjoying their riches right now. So, a stock recommendation that plays on your feelings, and attempts to draw you in using this tactic, is suspicious.
Be wary if you can’t find any information on this person/company/entity
There are many investment scams by fictional companies enticing impressionable investors to put their money into what sounds like a really good opportunity… at first.
A rule of thumb: no matter who’s giving you the recommendation or stock tip, always be sure to run a Google search on them or their brokerage firm, or company. There are also brokerage verifiers online that can help you with your sleuthing.
If all else fails, take it to Bank Negara Malaysia to check if a company is registered and trustworthy, or to make a report.
What you can do as a fledgling investor: get your fundamentals right
The above addresses how you can fish out shady stock tips from legitimate ones. But that’s not all – you still have work to do as an investor (or investor-to-be). Knowledge is power, and the more you know, the less likely it is that you’ll get swindled or led by the nose into a less-than-ideal situation where you may end up losing money instead of making it.
In other words, you need to get your fundamentals right – for investing and personal finance. Before investing, you should have your financial fundamentals in place, like having an emergency fund to fall back on should the worst happen.
You’ll also need to get the hang of assessing stocks and companies at some point in your journey as an investor. So, learn how to read company financial statements and stock charts, and get your investing fundamentals right. This also includes knowing when to cut your losses by pulling out when an investment starts going south.