Why don't you trust research by other investors/posters?

[john kane]

Everyone seems to advise me to do my own research and invest in companies based on my valuations etc.

Given that there are some investors here with a lot of knowledge and who have spent a lot of time looking into some companies and then say they are/have invested in them, how is it irrational to act on this advice?

[john kane]

this was a reply by hawk on another thread:
[ QUOTE ]

It's a very bad idea for you to be doing this. Without even commenting on the portfolio itself, a) you are acting on tips. It's bad to act on tips, even if the tip is right, because you will not have the conviction that comes with doing the work yourself.

[/ QUOTE ]

do i need to have conviction? if i am told a company is will rise, i invest in it, i am told at roughly what price to sell/when to sell, surely i do not need any conviction(?)

[jthegreat]

There's risk either way. If you do your own research, you risk making a mistake. If you listen to someone else, you risk *them* making a mistake. That's in addition to standard market risk.

I try to do both.

[ahnuld]

Alot of it comes from learning what to look for in companies, just learning how to do it. You dont want to be dependant on others for your investmets, you want to be able to look at a company and make a decision yourself.

[RedJoker]

One problem is that if something happens at the company and the share takes a dive, will you know if the problem is temporary or critical.

Let's say a company loses a major client, stock price naturally gets hit. Do you know how many other clients the company has, how much the company relied on that big client. How much he added to revenues last year, the year before, etc. Understanding if the company is a sound investment will stop you from getting out at the bottom.

On the other hand, let's say the company does really well. You were told to get out at $X, two years later the company hits the mark and you sell. However, that may have been the value 2 years ago, now the company may be worth much more than that and you miss out on a large chunk more.

What if the share price goes nowhere for the next couple of years, becomes a value trap? How long will you be able to leave your money sitting there while the market makes 10% a year? Do you know how much potential there is? Are you wasting your time or in the perfect position?

These are just a few of the dangers of depending on other peoples advice. Others would include, they're wrong and you can't tell the difference.

[SplawnDarts]

Generally speaking, there are a number of problems with relying on advice as a sole means of picking stocks

0) The person may not be as competent as you think, and their analysis may be just plain wrong

1) The person doing the picking may not have the same goals as you in terms of risk vs. reward, taxes, etc.

2) There may be unstated factors in their analysis that you don't agree with. For example, my (very light) tout of HERO a few days ago assumes that crude prices will stay sufficiently high that drilling the gulf of Mexico remains profitable. Is that true? Probably. Did I bother to mention it in my 5 line writeup? No.

3) The information you don't know about the stock may make it dangerous to hold. To continue the example from 2), suppose crude prices drop massively for some reason. I would know HERO's longterm prospects were endangered, and would likely sell before the price dropped too bad. But you, not knowing what I know, might well ride it into the ground.

[thehun69]

SplawnDarts has it right. Another great line from Wallstreet where all of life's lessons are learned:

WILL YOU DO YOUR OWN HOMEWORK MARV?

That's it man. Otherwise you will never learn this game. I can give you tons of advice and tips (like buying April 210 Puts on Goldman Sachs, selling now at 13.80 - which by the way if you do or do not buy, that is your responsibility, not mine if you make or lose money.) but you will never learn and will constantly be at whim of others.

THE HUN.

[maxtower]

Since a great number of market professionals can't even beat the market long term, why would you believe that your friends from the message board can beat the market long term?
Sure there may be a couple guys on here who are beating the market, but what if they have only done well the last three years? Maybe they just picked the right sector. From what I can gather, very few people are beating the market long term. From my experience these people are also not likely to be the ones dispensing advice on picks. Given all that, do you still want to rely on this information to beat the market? Sure there may be someone who can tell you what stocks to buy to beat the market, but the chances of you meeting them on an internet message board are a lot smaller than you think.

[gull]

[ QUOTE ]
Everyone seems to advise me to do my own research and invest in companies based on my valuations etc.

Given that there are some investors here with a lot of knowledge and who have spent a lot of time looking into some companies and then say they are/have invested in them, how is it irrational to act on this advice?

[/ QUOTE ]

This is a good point. If you think that other people are more knowledgable and skilled than you, then it makes perfect sense to invest in the companies they invest in. It's not irrational.

Unfortunately, most people fail to beat the market. Because of this, it's prudent to not blindly follow other people.

However, instead of doing your own "homework," I would suggest investing in index funds.

[kimchi]

You need to have your own system although there's no reason why it can't be adapted from another person's ideas.

You need to know which market to invest in, what vehicle to use, how much to invest, when to enter, when to exit, when to cut your losses, when/whether/how to add to or trim winning positions.

Following a tip is certainly not a strategy and paying for tips is absolutely a loser's game.

You've mentioned you make decent money playing poker. Maybe stick to that and study the markets on the side.