Do you want to make money trading shares?
Trading stocks can be incredibly exciting, especially when you place your first trade. There is an adrenaline rush akin to taking your first step off a diving board – it’s exciting in that moment and the rush stays with you for some time afterwards.
Unfortunately most new traders start trading by taking a stock tip from the wrong person – someone who has a vested interest in a stock – and the elation quickly turns to regret.
Here is a list of the top 5 people NOT to take stock tips from.
Friends
The worst investment decision I ever made was on the back of a friend’s advice to buy a particular stock. He worked in the financial services industry so I thought he knew what he was talking about. The fact that he worked in the back office and not as a front-line advisor should have rung a bell. Anyway, without doing any analysis of my own I stepped up, bought the stock and watched and waited for the falling price to turn around. It didn’t. A friend promoting a stock is usually trying to justify their own position.
Family
Financial advice from unqualified family members can get really ugly. Family relationships are difficult enough without adding financial burdens into the mix.
Taxi Drivers
We put a lot of trust in taxi drivers. We happily step into their vehicle and effectively hand our life over to them for the duration of the trip. We expect them to be an expert at both driving, driving safely and knowing how to get to our destination (or at least the ability to follow a GPS). Taxi drivers tend also to be a fount of knowledge, whether we choose to be engaged in conversation with them or not. Whilst taxi drivers are a good barometer of societies overall sentiment they are not financial advisors. If a taxi driver advises you to buy a particular stock, ask yourself why? Chances are the last person in the cab mentioned the stock to the driver and you are now the recipient of this 2nd (or 3rd) hand information. Alternatively, the driver was advised to buy a stock by another passenger, they bought the stock and now want confirmation that they made the right decision.
Anyone in a Pub
Would you take medical advice from someone drinking? So why take financial advice from them? Wait until they (and you!) are sober then do your research.
Spruikers
Remember the old soap box spruikers? They were always selling their idea, be it religious, environmental, social or financial. Some of the information was useful but most of it was just plain crazy. Don’t buy stocks from slick operators yelling at you or tugging at your sleeve. Brush them off and find someone with a proven track record, an Australian Financial Services Licence and who you can discuss your requirements with in a calm environment.
Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets.
AFSL 288200.