Stock Tips Are Just Words, Not Guarantees

Stock tips are commonly offered by many stock analysts and other individuals to trade the market. While a good stock tip can be a powerful tool, it can also lead to problems for investors. There are many forms of stock tips that are currently available. Everywhere that you look in the financial world, someone is giving their opinion about a particular stock that you should buy. You can find these stock tips on radio programs, television programs, blogs, websites, newspapers, and magazines. Many individuals publish newsletters that are based on nothing more than providing stock tips. These tips could come in the form of buy and sell recommendations, or in the form of target prices. Here are a few things to consider about stock tips and how much faith you should put into one.

Trading Tips

Many investors, particularly new investors, like to make trading decisions based on the stock tips that they have received. Many new investors will subscribe to the newsletter of a prominent stock analyst or someone else that they believe can tell them what to do. Then, they will wait for the recommendations eagerly and then immediately put them into practice once they are received.

Many traders will take these tips as though they are a guarantee or a "sure thing." However, these stock tips are nothing more than a recommendation. The individual that established these tips may, or may not, be trading these suggestions in their own accounts.

Motivation

When you are receiving stock tips from an expert, you have to stop and try to determine what the motivation for these individuals is. Ask yourself why they would be giving out these stock tips in the first place. Many times, brokerages and other financial institutions will hire analysts to give stock recommendations. This is so that the brokerages can increase the number of orders in their system. By doing this, they increase the number of orders and increase their commissions at the same time.

The purpose of the stock tips is not necessarily to help their customers make more money, but to simply trade more often. Other experts might start a blog or a newsletter just so that they can become more well-known and develop a list of potential customers. Then, at some point, the expert will sell some type of trading or stock-related product to the list. You have to think about why the person is offering the stock tips before you implement the strategy.

Type of Tips

When you are looking at stock tips, you need to know that some of them are more valuable than others. Some tips simply come in generic form, such as "buy" or "sell." These tips do not take into consideration where you are as an investor and when you got into the ownership of a particular stock. Target prices are much more valuable to investors because they are not subjective. They give you something that is based on reality to strive for.

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