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Beware of Hot Stock Tips | Investment Strategy

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You need to beware of hot stock tips that you read about online or hear about from new outlets.  Seriously, once a name is out there as a good buy, it rarely stays that way.  In fact, once information gets out about a stock, the prices rarely stay cheap.

If you don’t think this is true, you should just ask people who have used investment strategies that relied on these so called hot stock tips.  They will tell you that this is a bad way to invest or to trade.

There are day traders who use news about hot stocks to do their trading.  But they are skilled and have an intuitive sense of how news affects particular stocks.  If you don’t have a keen sense, you won’t do well with this kind of stock market trading.  This is a very tricky way to trade.

You should definitely not do any kind of long term stock market investing this way.  Recent studies have shown that analysts and experts tend to be overoptimistic about hot stocks.  Again, if you do invest based on these tips, you need to be ready to get out as soon as the ball drops and it is no longer popular.  Or at least until some analyst decides is overpriced.

Hindsight is 20/20.  There are always stock picks that experts can point to as having been good picks.  I’m sure someone at some point early on mentioned Microsoft as a possibly good buy.  That doesn’t make you a master stock picker.

The best stocks to invest in will not be stocks you hear a lot about.  They will be good companies that fly under the radar of most investors and analysts.

If you are an individual investor set on finding diamonds in the ruff, you should consider small caps.  They are small enough that most people don’t care about them.  They easily fly under the radar and they easily are missed as hot stock tips.

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