Here’s the best tip I’m ever going to give you

I’m going to dedicate this column to Dave, who left a message on my previous column indicating he hasn’t had much luck or experience with the market, and asked what my opinion is on buying oil.

I’m going to give it to you straight, Dave — I don’t know.

But I’m in good company.

I doubt Warren Buffet knows.

Or Carl Icahn.

Even “the commodities king” Dennis Gartman wasn’t sure during an interview today on CNBC.

But here’s what I can tell you:

You’re not going to be successful in the market by watching TV shows with so-called experts giving sound-bites about a bunch of stocks.

That will be a surefire way to get burnt.

And don’t look for “tips” in the blogosphere — as you don’t know whether the person is hyping or talking down a stock to affect their own position in it.

Furthermore, even if someone is giving you a great stock pick that ends up being a huge winner for them — even if you buy the stock the same day as them — you could get wiped out in it.

You see, while you may be buying it at the “asking” price — they may be more of an options trader and placing puts and calls on it.

As I noted in an earlier column — this ain’t your daddy’s market anymore, baby — and that’s because we live in a time when people trade 24/7 and there are all kinds of hedge funds and private equity investors moving the markets in different directions on a consistent basis.

Due diligence in studying an investment is a necessity.

If you can’t get a handle on something — it’s probably not a good idea to contemplate putting your money in it.

There was definitely a momentum occurring over the past few months with oil going up and up, topping at 147 on July 11.

Anyone following that momentum and reading the stories knew it was a good time to hop on that oil train.

And, at that time, I had no qualms about pointing out the upward trend.

But oil is now at 122.19 a barrel.

Could it rally again?

Absolutely.

Could it keep going lower?

Absolutely.

Stick your finger in the air and see which way the wind is blowing — your guess is as good as any other so-called experts on the street.

And, for me personally, not having a good handle on a particular investment signals it’s not the investment for me to be in at that particular moment.

In other words, don’t make the mistake of relying on anyone else to tap you on the shoulder and tell you now is a good time to buy anything in the market.

Because the chances are someone on TV, the radio or the blogosphere isn’t going to hunt you down an hour later when a news story breaks that completely changes the dynamics of that investment.

And that creates the perfect storm to get slaughtered in the market.

You see, it’s often much more important to know when to sell than when to buy.

I have no qualms of claiming no bragging rights of getting into an investment when it was at its rock-bottom price.

I’d just as soon catch it on its way up, know when to take my profit — and get the heck out — than get caught in a bottom that keeps going lower.

So here’s your tip — do your own due diligence.

I can promise you this — there are a lot of really good companies out there right now getting unfairly beaten up in this market.

Think of the products you or your kids use every day that they will not go without, no matter how bad the economy gets — then do a little research on that company.

In other words — invest in something you know.

And when you do find that perfect stock or commodity to jump into — for heaven’s sake — don’t make the same mistake many of the minor leaguers make all the time by putting all the money they’ve got on the sidelines into it.

That style rarely pans out.

Hedge your investment.

Put a little in and wait a little while to see how it does.

If it goes up, and all your research indicates it’s going to be smooth sailing — feel free to buy a little more.

If it goes down — but your research still tells you this company is a keeper and it’s getting unfairly beaten up — then feel free to pick even more up at a better entry price.

But, if at any time it looks like the fundamentals of the company have changed, and it no longer feels right — cut your losses and get the heck out.

And, most especially in a volatile market as we have now, diversify-diversify-diversify.

Perhaps the best advice I can give you, or anyone wanting to get into the market, is this — if you haven’t — at a minimum — read every single thing there is to read about the company over the past six months, including news stories, their previous quarterly reports, their prospectus, listened to their past two analysts’ calls and studied their balance sheet — then don’t buy.

And when you do buy — make sure you continue to monitor all those same sources for as long as you own a position in the company.

One tip I will give you is this — sometimes I find the best information about a company I’m interested in buying a position in is by reading the quarterly reports from their competitors. It’s amazing what they will dig up about their competition when they’re trying to justify their bottom line to their own investors.

The little disclaimer I post on the bottom of almost all my columns really sums up the best advice: Don’t base any of your investment decisions on anything you read in my blog — do your own due diligence — or at least enough research to pick the best professional to do it for you.

Good luck, Dave!

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2 Responses

  1. Thank you Cathleen for that thoughtfull reply. I enjoy reading your blog. Found it by accident loooking at ‘Hull’ things on the web. but glad I did.

  2. make money online…

    Great content. I’ll keep coming back for similar posts which I cannot wait to read….

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