“Psst-Stock Tip?”: Why This is Not A Good Idea

“Psst – Stock Tip?”

That’s the sound of a stock tip request that occasionally comes my way whenever I reveal that I write for the Motley Fool. Sadly, I often have to turn them down.

That’s because I am not allowed to give individual financial advice. Besides, a stock tip can be dangerous if we do not put it in the right context.

What context am I talking about?

Different walks of life

Everyone comes from different walks of life. It follows that each individual may be in different stages of their financial life as well.

For instance, an investor starting out may want to attempt to beat the Straits Times Index (SGX: ^STI) by betting on a growth company. However, a retiree who has a comfortable stash in his coffers may not need such ambitions goals like beating the market – instead, beating the inflation rate may suffice.

Your portfolio mix

By the same token, a riskier growth stock added into a portfolio full of stable dividend paying companies may not be a risky move to make. If the riskier company makes up only a small allocation in the portfolio, it does not damage the portfolio if the company’s shares head south.

However, to a portfolio which is already loaded with other high-risk growth companies, the same move (adding a riskier growth stock) may be asking for a spot of trouble.

Investing style

As I have written before, every person would likely invest in a different manner.

In this case, a random stock tip may not be helpful as the stock idea may not suit your own investing style. If that’s the case, a good idea may turn into a bad fit as the nervous investor is not able to have the conviction to hold on through the share price changes.

In that scenario, even a good idea may turn into an unprofitable one.

Following a company

A stock tip in it by itself is at most a starting point. It tells you very little about what will happen next.

As Fools, we are looking at the long-term future of a company whenever we buy its shares. When a company is bought, the patient investor would do well to follow the developments of the business over time. A stock tip alone provides none of the work that follows on later.

Foolish takeaway

Stock tips aside, what matters in the end is that your financial goals are met, and not whether you do better than the guy or gal next to you. So, remember to reach for your own goals, and not someone else’s goals.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.