(Part 1 of 4)
LISTEN to friends and neighbors:
Your friend had just hit the big time with a red-hot stock tip. This is big money. Mucho dinero. You follow suit and buy this random stock on impulse. There are some problems here. First, your friend is probably not telling you the whole story. Yes, he may be boasting about his gains but not his losses. You may have the impression that he is doing great but he may not be.
What to do: Research, research, and research some more. Research solid companies with good fundamentals and revenue, profit, cash, and EPS (Earnings per Share) growth.
Follow the crowd:
Your neighbor bought a stock which increased its value by 20%. Your co-worker bought the same stock which has appreciated by 50%. Everyone is talking about this stock and it’s making a lot of noise in the news. Will you invest in that stock too? What you may not know is that that stock has climbed to overpriced territory and that your neighbor exits (meaning sell) as you enter (meaning buy). Ugh.
What to do: Research before going long (meaning buy).
Listen To Outdated News:
You Googled a certain stock. An article pops out with a great rating – a strong buy. A neat buy. But the stock takes a dive thereafter. Startled, you go back to the article and find out that the news item is a year old. What a bummer.
Caution: Most articles disclose their dates even before you click to open; sadly, some don’t.
What to do: Always look for the dates (which may have been grayed out) before you open article.
Follow Biased Analysts:
A company may hire a PR (Public Relations) firm to get positive coverage in the media. It may pay analysts to write positive coverage and pay media outlets to cite the analysts’ work. Unsuspecting investors may take the bait (and they do), buy high and see the shares dive as hedge funds unload their holdings. Ouch!
What to do: Don’t buy stocks from a positive review by one analyst. Read several articles from various brokerage houses and form a consensus to buy or skip. This way, you tune out noise.
Buying Penny Stocks:
Cheap penny stocks are tempting to beginners with limited funds but are quite dangerous because they are open to pump-and-dump scams. All it takes are a few positive reviews and a few media to spread the news to unsuspecting investors like you and me. As the stock moves up, hedge funds sell, market drops, you sell, you lose.
What to do: Research. For example, if you are buying biotechnology stocks, follow their studies and drug trials to see how the phases are progressing and how they are faring with the FDA (Food and Drug Administration).
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].
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