As 2021 gets well underway, many investors are hunting around to discover the best share tips for their ISAs. I am doing a lot of that myself, so understand the feeling well. It’s a good time of year to share some general principles I follow when looking at share tips.
The source of information matters to me
When it comes to investment, information can be very powerful. Unlike years ago when retail investors were mostly limited to the press and hard copy annual reports, the Internet has opened up all sorts of informational options for us. An example is the regulatory news service filings (or RNS) that listed companies make to the stock market. Most companies carry these on the investor section of their websites. They offer a wealth of information, from trading updates to director share dealings. They can be well worth a look when assessing share tips for 2021.
When looking at a share tip, I always try to assess the motivation of the tipster. For example, do they have some skin in the game? Might they have an agenda different to mine? What is their track record like? In itself, I don’t find any such consideration conclusive. But they can be helpful in forming a viewpoint on why a share tip suggests a certain action, right now. For example, I find a tip more credible when I know what the tipster’s own position is in the shares in question.
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The market is a weighing machine
Legendary investor Warren Buffett says that in the short-term the stock market is a voting machine, in the long-term it is a weighing machine. In other words, quality will out.
I find it useful to remember Buffett’s adage when it comes to acting on seemingly hot tips. For example, the weekend papers may tip an exciting growth story. But by the time one gets to see the share’s price on Monday, it has already moved sharply upwards. I like a hot tip as much as the next investor. If a company is world-class with solid prospects for years to come, rushing in shouldn’t be necessary in my view. Not diving in immediately may indeed reduce my return. But if the shares rise enough over the long term, I should still make an agreeable profit. I notice that long-term thinking in Motley Fool’s share tips for 2021.
How I’m reacting to share tips for 2021
That is why I am circumspect about share tips for 2021 that demand immediate action before an opportunity is gone. That is true sometimes for legitimate reasons. But at other times it is just sales bluster which can lead investors to expensive mistakes. The first pink sheets trade shown in the film The Wolf of Wall Street captures this sort of situation. A boiler room stock operation uses high pressure ‘hot tip’ tactics to persuade an investor that the tip is so urgent, he needs to decide his course of action immediately.
Acting on a tip sooner versus later may make some difference in terms of the total return one can get. But as a long-term investor looking for companies to buy and hold for years, that shouldn’t make a big difference to my investment returns. Meanwhile, taking time to do my research, find out more information about share tips for 2021 and carefully weigh up my options will likely save me from costly mistakes.
