Ways to Weigh a Stock Tip

Wednesday, August 19, 2015

Share tips are a great Australian tradition, whether they're passed on by your brother-in-law at a dinner party or by a stranger in an online chat room. The obvious problem for investors is; do you just take the bait.

Always remember, when you buy a stock, someone else has to believe just as passionately that it's a sell," says Elio DÁmato, chief executive officer at financial research firm Lincoln Indicators, which operates the Stock Doctor fundamental analysis subscription website.

Investment require a lot of work and following tips from a workmate is just not going to work. You might get the odd one right through sheer luck, but its not going to make you money in the long run.

DÁmato says investors have to understand the business behind the stock, what it's worth and what its risk level is. But even before that, he says they have to understand what kind of investor they are - a trader or a long-term investor.

For a start, investors have to understand the share price "means nothing", he says, other than what entering the stock will cost you. Nor does the usual method of expressing a stock's risk, its standard deviation measure (volatility of the share price around a mean). "When it comes to risk, the actual risk of an investment is the financial risk of the business.

Best tip is get professional advice. otherwise it is comparable to backing a horse tip at the races.

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