Stock Tip: Don't Take Stock Tips

Gil Morales and Chris Kacher
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Posted: Jun 08, 2011 12:01 AM

As legendary investor Jesse Livermore once wrote, more money has been lost by those who take stock tips.

There is a difference between taking a stock tip that has no inherent or proven logic behind the tip compared to acting on stock suggestions based on stock market trading strategies that have proven themselves over many market cycles.

If one is going to follow sites that provide daily stock tips, know the basis of the tip and know the track record of the tipster. Picking through daily stock trading tips is treacherous if you dont know what you're doing.

Along with stock tips comes the invariable declarations on where the market is headed.

We see the talking heads on major networks such as CNBC, Bloomberg, Reuters, and even Fox Business News where Gil Morales is a frequent guest on such shows as Stuart Varney & Company and the post-market Bulls & Bears segment.

But his views are based on intensive market analysis based on historical precedent going back many decades. Our trading and research laboratory continues to spawn new ideas which are then rigorously tested.

Any results that can potentially enhance our returns and withstand the rigorous backtests over not just a few market cycles but over entirely different eras are then incorporated into our strategies.

Incidentally, no one has ever been able to demonstrate consistency in predicting the future of the market. Thus, the best way to construct and manage a stock portfolio is to do it one day at a time.

In other words, the market will give you enough information on a daily basis so you can adjust your exposure to the market on the long or short side accordingly.

In fact, the reason why many can miss whole bull and bear markets is because investors get overly attached to one or two aspects by the news media and become wedded to the ideas, such as the sky is falling mentality that prevailed in March 2009 yet proved to be the bottom of the stock market.

Or it could be the more recent idea of the rise of the emerging creditor nations such as China and India vs the demise of the debtor nations like the US, UK, and Europe, or the idea that the US is on the path towards bankruptcy.

While the situation in the US is not good, should bankruptcy occur, it is probably many years off. So an investor needs to be focused on the NOW and not take a view of the world years down the road when there is so much that can happen between now and then.

So what is going to happen or not happen years from now is pretty much irrelevant in determining what to do NOW.

So if one is going to walk into the world of investing armed with scant information and be influenced by a stock tip, at least understand where the stock trading tip originated, the nature of the tip, and whether there is any track record of the person giving the tip.

Otherwise, we believe it is always a much more sound approach to operate solely on the objective price/volume information that the market and leading stocks are providing in real-time, every market day.


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