Can you trust the person giving the stock investing tip?

financeAny stock investing tip given to you, either through financial advisers, websites, or broadcast journalism should include a financial disclosure statement if it provides analytical information.  What does that mean?

 

Let’s say that you just read a great article about how Exxon’s stock was poised to go higher.  The article stated that because of the oil markets, the company is making more money so the stock is a great buy right now.  Would you think twice about the author’s opinions if you found out that he already owned a lot of stock in Exxon?  Maybe it would, maybe it wouldn’t but you should know that.  The disclosure statement will normally be at the bottom of the article and will normally read something like this:

 

(this, by the way, is a true financial disclosure statement)

 

“At the time this article was written, the author did not have a position in Exxon.”

 

 

 

This financial disclosure is straightforward.  I’m telling you that I don’t own any investments having to do with Exxon.  (Remember that a “position” means ownership.)

 

If the author does own investments in Exxon, it may look like this:

 

“At the time this article was written, the author as long Exxon.”

 

This is a little bit more complicated because of that word, “long.”  This is telling us that the author has a long term investment in Exxon.  They are holding on to it for a “long” time.  (In investment terms, that normally means a year or more.)  The opposite of long is short.  If the author is “short Exxon” that means they are looking to make quick money on it.  They may hold on to the investment for days, weeks, or maybe a few months.

 

The stock investing tip can be a bit misleading.  Short is also a trading strategy that means an investor is betting that the stock will drop in value.

 

It is up to you how much the financial disclosure statement affects your judgment but let me give you some general rules of thumb.  First, the larger the company, the less it will move by people talking.  Exxon is huge.  One person talking about it doesn’t change it. (In most cases)  A smaller company, on the other hand, can be moved greatly by influential people talking about it.

 

Why is it important to talk about disclosure when we’re looking at a stock investing tip?  We need to know how to read information presented to us and evaluate the validity and disclosures do just that.  The most important thing we will learn is that any article we read should NEVER cause us to take action.  It’s a starting point to dig deeper.  Our money is our own and we must be honest and say that nobody truly cares about our financial well-being than we do.

 

So next time you read an article that has a stock investing tip that is sure to make you a lot of money, take a look at the source of the article.

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