When It Comes To Stock Investment, Who Should You Trust?

Apr 18, 2017 | 06:33 PM IST

A serious question - when it comes to your stock investment (read hard earned money) who do you trust? Your beloved friends and neighbours, your stock broker, financial channels and newspapers? Generally, these are the only options retail investors have. Sadly, most of the times these "reliable" options fail investors. Is it that these guys are leading you on the wrong path on purpose? Not really, the truth is that stock market is an extremely complex concept. Most of the people feel they know the market but sooner or later the hollowness of their claims become clear as air.

So the question still remains unanswered - whom should you trust? Whose word should you take when you are at that critical point of making a 'buy' or 'sell' decision?

Your "Trusted" Friends Are Not So Trustworthy After all

There are many investors who just blindly follow the advice or the share market tip given by their friends. It's not that your friends mean to harm you in any way, but it's likely that your friend received that tip from one of his friends who got it from his friend's friend. So, it is possible that this distant friend may not care about your best interest. The point here is that this is how the herd mentality in the market gets formed, and more often than not it leads to failure.

To identify good stocks one needs to assess all the fundamentals, trends and patterns of the stock before ascertaining its best buying level and its growth potential. A free tip will never do that, at best, it can give you some intraday gains. But most of the investors end up losing a lot of money going through this channel.

Financial News Channels And Newspapers Don't Research, Just Report!

The stock market is a big part of our economy. Naturally, it gets a lot of airtime and newsprint. Business journalism is so big that it gets dedicated channels and newspapers which only carry business and financial news stories. The common mistake people make is to expect advice for their investment from these mediums. Though there are various features on these channels which make you believe that they are extending advisory aid to you, however, it's so generic that it's hardly of any use. It is just a share price list and nothing else.

If you check the nature of reporting of the financial media in the thick and thin of the market, their true face will be revealed. When the market had collapsed in 2008, the financial news channels across the globe had left no stone unturned in creating panic and fear amongst the investors. On the other hand, when the market rallies, the same media creates the atmosphere of great euphoria with absolute disregard to possible corrections or roadblocks ahead. Financial media, like general media, just reports the news.

Right Things To Seek From The Financial Media

It is not that financial news channels don't add any value to your investment wisdom. They do carry a lot of informative features which are very useful for investors. For example, many financial news channels and newspapers carry programs and articles on tax saving and understanding the complex operational issues related to investment which can be very useful for the investors. However, the problem starts when you start to expect personalised investment advice from these mediums. These are TRP driven mediums, providing personalised service is not their objective.

Remember, Stock Brokers Are Not Stock Analysts

Let's clear this confusion once and for all - stock brokers are not stock analysts, their single minded objective is to induce you to do more and more trades. The point to note here is that stock brokers are well versed in stocks and have the ability to identify a good stock from a bad stock. Stock tips coming straight from a broker has more chances of hitting the target, but it still doesn't suffice the long-term objective. Reason being, stock brokers are salesmen at best, and they represent a brokerage firm which gains every time you make a trade. Hence, more you trade more brokerage the brokers and the firms earn. When they have such vested interests, do you think, by any chance, brokers will provide a stock call for value investing? Not really.

If you are looking at the stock market as a platform for investment then the first thing you should do is stop listening to your stock brokers. There is a sea difference between a stock analyst and a stock broker. The former studies and analyses stocks and scrutinises it on all the fundamentals while the latter just recommends it without any in-depth research. Though they try to impress upon you that they know everything about the market but a broker is not an ideal person to go to for an investment advice.

Personalised Investment Services - The Best Option

Drafting an investment plan is a work of precision. All the details of your financial needs have to be categorised in a short-term and long-term bracket. Accordingly, your instruments of investment have to be selected. All this takes a lot of knowledge and most importantly a lot of time. That is the very reason no one does it for free. Availing services of a good stock advisory firm not only gives a better insight of the financial world but also provides much-needed assistance for making right choices.

Just imagine, would a tailor be able to stitch a trouser for you without taking your measurements? It is impossible, right? Investment is just like that. To plan it, one needs to have a full understanding of your financial goals, your short-term and long-term monetary needs, etc. After analysing all these details one can chalk out an investment plan that perfectly suits all your requirements.

Key Takeaways

Once you start striking out the options of reliable investment advisors on your list, the list will boil down to only two options - yourself and a dedicated financial advisor. It’s simple, either you do your own research or hire the services of the professional investment advisor. In the long run, it pays to spend a little on a valuable advice then losing money through uninformed investment choices.

 

ABOUT AUTHOR

Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to pave a smooth road for our clients in the shaky world of stock market. While...
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