Are you worried about the recent volatility in the Stock Market? Are you confused what to buy, sell or hold? The newsletter selects quality mid-caps and small-caps for investors with a long-term perspective and provides timely buy/sell/hold suggestions. Send an email (to address in profile below) for subscription details today.

Friday, June 12, 2009

What is the value of stock tips?

When I first started writing this blog about a year ago, one of the first things I considered was whether to give stock tips or not. Quite a few readers have also asked me to give stock tips.

Many of the popular Indian stock sites thrive on providing several stock tips throughout the day - with detailed levels of support, resistance, stop-loss. A few of these sites have paid subscription services. Some even openly ask for money that they will invest with 'guaranteed high returns'.

The question that immediately popped up in my mind was: What is the value of these stock tips? Do they teach readers to become more adept at picking their own stocks? Or, do they urge people to jump onto a momentum stock's bandwagon?

I remembered the old story about catching fish:- Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for life.

As a long-term investor, I had no desire to keep coming up with a handful of stock tips every day, without any accountability about what those tips may do to my readers' finances. Is anything that is churned out a dime a dozen of any real value?

Another factor that influenced my decision was that very few sites take the trouble of explaining in simple language about what is going on in the economy and the environment around us, and what could be their effect on the stock markets and individual stocks.

As an engineer who has been investing in the stock markets for nearly 25 years, I had to learn about the basics of economics and accounting - just to level the playing field against the smart Chartered Accountants who can dissect an annual report before I can say 'Jack Robinson'.

But the most important factor was the observation that most stock related sites have either a 'fundamental' stance or a 'technical' stance. As if, to quote Kipling: 'Oh, East is east, and West is west, and never the twain shall meet'.

This unnecessary divide created between fundamental analysis and technical analysis was brought forth piquantly by a member of an investment group, who asked me after reading one of my 'Stock Chart Pattern' discussions: "Are you a fundamental analyst, or a technical analyst?"

My mind was made up. This will be a blog site that will discuss both fundamental and technical concepts, in easy-to-understand English with a good dose of my investment experiences thrown in, to make a mix that will motivate young people of all ages to learn more about long-term investments in the stock market and mutual funds.

So I write about a couple of stocks every week - not because I want you to blindly go out and buy or sell them, but to learn how to take your own decisions about different stocks based on the fundamental and technical parameters discussed.

My friend Pankaj sent me a congratulatory email after noticing that my Sitemeter is now into 5 digits. A better criteria of success will be if you, dear readers, improve the quality of your lives and become better investors as well.






Eswar Santhosh said...

If one has great, sustained success with giving calls, why don't they use all their tips and make money for themselves? Typical tip sites collect thousands per month from gullible investors and get rich.

It is my belief that each person is different and hence the portfolio must be built to suit their own vision, goals and needs. Depending on somebody else would never make a person a good investor.

To recount from my own experience, I have tried several ways to "get rich" quick in 2004 - 06. My holding period would typically range from a month to a year. And as is to be expected, 85% of the tip based "investments" went sour. That wasn't "me".

Now, 85% of my portfolio is made of stocks I have been holding for at least 2 years and more. Though I still don't "get rich" soon, I have laid a foundation (in other words, a method replacing madness) for the next 20+ years, why 20?, 30+ years I am going to spend in this market.

As for TA vs FA, I'd say it's (again) more about the individual involved. If TA can help me make correct entry or exit from stocks OR would provide me a decent percentage addition over and above what I am currently capable of, I'd not be averse to make it part of my asset building exercise.

PS: Even if you stop providing stock tips, I'd still be reading your blog. IMHO, I'd get better just by observing and adapting what I see fit from experienced investors than knowing their portfolio or their networth :-) And I am not shy about copying good things to help me get better :-) :-)

krishna said...

excellent write up sir......ypur blog is in very easy language.....reading ur blog is a learning process for me......thanks sirrrrrrrrrrr.....we dont need any call or tips....but we want to know how can we pick good stock for wealth creation....ur b;og provides us a lot of info....either fundamental or technical......keep writing sir :)

Abhijit said...

Excellent write up. What you said is absolutely correct. It would be good for all of us if you unravel the complexities of market in such a lucid way,

Subhankar said...

@Vini: You have a point there. Trouble is, we live in an imperfect world.

@Eswar: That's a great question. Lynch has mentioned that it is better to get rich slowly. You probably get to retain some of those riches.

You are one of the quickest on the uptake amongst recent investors that I have interacted with. It is heartening to see that you've adopted the 'investor' mentality.

I'll keep on writing about individual stocks - mainly to use them as examples to explain technical and fundamental concepts.

@krishna: Appreciate your feedback. Hope you had a chance to read my posts on market cycles, sector selection, and top-down as well as bottom-up stock picking.

@Abhijit: Thanks. I'll continue my efforts to guide all my readers on the path to financial independence.

Eswar Santhosh said...

One of the reasons I frequently visit your blog and leave (sometimes longer than your post) comments is that you stick to simplicity.

In my initial 2-3 years, I had lot of ways to choose from - right from Intra-day trading to derivatives to TA based short term trading to FA based investing.

I found out after a lot of trial and lot more errors, that buying the stock at the right price and leaving it unattended without giving undue importance to daily price gyrations worked best for me. But, I was still not clear about the methods I should stick to and methods I should refrain from.

I have come across a few good experienced investors in the last 2-3 years. There are only a handful of investors whom I've wanted to emulate / learn from / follow (and they all been helpful). Not which stocks they are after, but how they react to the market and what sets them apart from several others including a few brilliant ones.

I think your method of creating long term wealth is the closest to what I am after.

The first thing I learned from you is that it can actually work, which was a great relief :-)

The second thing I am trying to incorporate from you is to stick to what works for me and not try to learn all unnecessary tricks in the Stock Market dictionary. I have not come across any writing from you that had overly complex or confusing terminology.

No! I am not writing this because you had commented something good about me, but because you are nice to keep giving me those "nuggets" :-)

That and felt like writing this for a long time and found an opportunity to do so...

SG Money Mind said...

Dear Subhankarji,

As long as your writings are simple and fair, there would be several silent readers like me who who may not necessarily post a comment but continue to read your blog. This may not be with a view on stock tips, but it could be to read about different point of views so as to arrive at a balanced view on various subjects.

This is particularly relevant when not many people write about (atleast know about) a particular company on its past track record over a period of 5 or 10 years. The crowd is more interested on the next quarter and next few years only and doesn't care about the past. When you put this into the picture the HDFC group and Reliance group fall under two different bucket.

SG Money Mind

Anonymous said...

Subhankarji hats off to you for your commendable and unremitting efforts in educating and guiding small investors in jargon free language.As far as SO CALLED TIPS are concerned these broker houses first invest in a particular stock and then give tips to increase the price of their stocks.Investors should themselves do the ground work before investing in a company rather than blindly following TIPS OF THESE BROKING HOUSES.
Sir,you should also consider my request to publish a book combining all your articles on the blog for wider reach as internet has limited audience.I remember reading the book YAADEIN by renowned naturopath Late Shri vitthaldas modi in which he wrots that when he first started naturopathy practice for free in gorakhpur people used to come but no body followed his advice as it was free.Then he started charging Rs5 (30 years back) so that people take naturopathy seriouly and get rid of their ailments.It can get the book published and price it nominally so that more people can benefit from your valuable experience and financial wisdom.I am sure your book will be best seller like BENJAMIN GRAHAMS INTELLIGENT INVESTORS.
With regards,

Subhankar said...

@Eswar: Thanks. Both you and Sujoy are so generous with your compliments that I'm having trouble keeping my feet on the ground!;-)

It is imperative that every investor works out an investment style that they are comfortable with - instead of willy-nilly moving in and out of stocks with a 20% gain here and a 15% loss there.

@SGMM: Appreciate your continued support as a reader and blog follower.

Unfortunately, our current environment encourages the emphasis on the 'here and now' - with easy access to consumer loans and credit cards. What happens due to over-leveraging over the long run, even in sophisticated financial systems, has been amply demonstrated by the global meltdown.

Some times one has to step back and take an eagle's eye-view of the economy and stock markets.

@sujoy: Thanks for the reference to the experience of Late Vitthaldas Modi about 'free' advice that very few follow.

Do you have any suggestions about what this book should contain, and what should be its price? You can write to me directly.