Have you ever received a #stock tip? I’m not talking about e-mail scams or unwanted evening telemarketing calls. I’m talking about when your neighbor suggests that you should buy airlines and cruise ships simply because the stock is down 70% or your cousin who dumped all her money into gold and Bitcoin and thinks you should do the same. I’m talking about your co-worker who name dropped the latest pot stock and expects to double their money in the next 6 months or your best friend who sold his entire portfolio to cash during a pandemic.

So what does your neighbor, cousin, co-worker and best friend all have in common? They all lack confidence in their investment decisions.

The problem with stock tips is that the message has evolved over the years. In the past it was much easier to set barriers for unwanted solicitation. If you received a questionable e-mail about the latest stock opportunity, you simply pressed the delete button and moved on with your day. If you received a telemarketing call during your dinner, you politely advised the caller to eat dog food and never call your house again. Easy to handle, right?

I believe that when your neighbor, cousin, co-worker and best friend share their personal investment decisions it means one of two things. If their decision turned out profitable like buying Tesla in January, you’re going to hear about it through self-promotion. If they made a decision that has yet to prove itself such as buying Air Canada after its 65% stock plunge, you’re likely to hear about it as a strategic long term hold purchase. In both scenarios a stock tip is born as FOMO (Fear of Missing Out) is now more likely to creep into your own investment strategy.

Framework and Principles

One of the most important lessons I teach my clients is to view investing as buying a collection of businesses rather than a collection of buying stocks. I know that I’m repeating myself however I cannot stress this point enough.

When you buy a business you pay close attention to its #fundamentals, like cash flow, quality of #management and future growth potential. When you buy a stock, you are simply focusing on the market price. This mindset can get you into all kinds of trouble.

Buying the Dips

As an investment #advisor, I have the responsibility to simplify complex situations while keeping my clients on track to reach their personal goals. I would love to tell you that all you have to do is follow my lead and buy a collection of businesses but the reality is that investment management requires much more intervention than buying and holding a specific company.

When you buy a business you pay close attention to its fundamentals, like cash flow, quality of management and future growth potential. When you buy a stock, you are simply focusing on the market price. This mindset can get you into all kinds of trouble.

We need to be engaged and believe in the businesses we are buying and sometimes our nerves will be tested. Price #fluctuations happen by the second and sometimes the unrealized value of your investment can drop significantly without cause or warning. If you sell a specific business during a temporary correction, you could convert an unrealized loss into a realized loss. Conversely, if you were to hold your position or increasing your ownership in the business, you could dramatically shift the outcome to a positive experience.

What is this week’s takeaway?

You will always come across direct or indirect stock tips from your neighbor, cousin, co-worker and best friend but that does not mean their opinions should influence yours. Rather than buying into other people’s investment decisions consider doubling down on yourself.

If you’re looking for a stock tip that will actually help you create wealth, consider buying the price dips of businesses you already own.

I am confident you will not regret your decision.

Talk soon,

Michael Zagari