Why I Buy Share Tips

Published in Investing on 8 May 2012

Not everybody has the time to pick their own winners.

It's difficult to know where to start with investing. I have always been intrigued but, until a few years ago, was never brave enough to dip my toe into the bewildering sea of information. Then one day I shut my eyes and jumped in.

Lacking in time and experience, I put my faith in others who confidently told me they could take my hand and keep my money safe. Was that wise? Do others really know better? Well here's my experience so far.

Penny shares, Dividend letters

Seeking share ideas, I have sampled different newsletters, magazines and tipsheets -- such as Red Hot Penny Shares, Investors Chronicle and even Stephen Bland's Dividend Letter -- as well as various Motley Fool services. While I can't link back to articles from these paid-for publications, I can at least share the pleasures and pains of investing as a result of using them.

There have been many tempting companies and opportunities along the way.

BP (LSE: BP), for example, was simultaneously given buy and sell signals during its 2010 oil-spill crisis. Likewise, Cable & Wireless Worldwide (LSE: CW) was both tipped and dumped by my gurus during the last three years. I watched from the sidelines as it plummeted from 68p to 14p and back up to its current 36p -- leaving me both relieved and frustrated at my lack of confidence.

Buying for real

My first real-money forays, though, had contrasting fortunes. AIM-traded Tasty (LSE: TAST), for instance, was championed as an up-and-coming restaurant group with a decent pedigree, which appealed to my gut instincts. It was definitely beginners' luck getting in at 36p and somehow not selling to give me almost a doubler today.

Another play was not so good. Timeweave (LSE: TMW), formerly Alphameric, owns a stake in a horse-racing broadcaster, which looked a good bet. Originally purchasing at 33p, I thought I was being savvy when the share fell, and I bought again at 31p. It was a harsh a lesson -- I discovered it doesn't always pay to average down -- as the price is now languishing at 21p. I'm licking my wounds, as all I have done is compound the loss.

In and out

Another early investment was mid-cap Ashmore (LSE: ASHM). I was a bit jittery at the time and a bit too excited to run my profits. The specialist investment manager was sold on me in 2009 and I was in and out in three weeks, taking a 15% gain.

Luckily, Ashmore's price dipped slightly and I piled in again before exiting with a further 22% gain a year later. If I had just stopped messing around, though, and listened to the buy-and-hold philosophy, I could have been sitting on a 60% gain without the additional dealing charges eating part of my profit.

Buying with Buffett

I have learned not to be quite so jumpy these days and am happy to sit for longer on shares. Also, I thought it might be a good idea to shore up my portfolio with some larger companies. Tesco (LSE: TSCO) is in my portfolio these days, although even investing legend Warren Buffett is coming in for a hard time on that one. We'll see if he is proved right or wrong in time.

(By the way, you can discover what price Warren Buffett paid for his Tesco shares in this special free report. I reckon I bought at a similar level, so I am in good company!)

In the meantime, my search for share tips goes on. I still lack the time and experience to do any thorough research of my own, so I am happy to read recommendations from all corners of the market -- and simply run with some familiar experts and buy the investment stories that tweak my instincts.

Indeed, I've seen dividend expert Neil Woodford make a lot of headlines recently -- and I've discovered his long-term track record is one the best in the City. 

So I'm currently reading the Fool's special guide on what he believes could be tomorrow's blue-chip winners -- and I'm hoping one of his holdings will strike a chord with me. A free copy of this Woodford report -- "8 Shares Held By Britain's Super Investor" -- is available now if you want to take a look as well.

Want to learn more about shares, but not sure where to start? Download this Foolish guide -- "What Every New Investor Needs To Know" -- it's free. The Motley Fool is helping Britain invest. Better.

Further investment opportunities:

Barry owns shares in Tasty, Tesco and Timeweave. The Motley Fool owns shares in Tesco.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

GrangeInvestor 08 May 2012 , 9:16am

I pay for both the FT and the Economist which I find pretty useful and enjoyable too. If there was a pay barrier on the Fool I probably would pay too -- though maybe I shouldn't say that!

But I would advise that if you lack the time and experience to manage your investments then you should buy some cheap index trackers or go for an investment trust like Woodford's.

jasonjarvisgbr 08 May 2012 , 12:24pm

Well it's not that different from many others Barry, is it ?

I get a tip, or an insight, maybe from the Fool or elsewhere, then I look for 3 or 4 pieces of corroboration - like a couple of Broker Recs or even better, some Director Buys.

Then, if its low risk FTSE100, and offers either a strong dividend or capital gain I might take a position.

If I can't satisfy myself as to it's quality, I might classify it as a 'punt' and take a smaller more speculative position.

TomRoundhouse 08 May 2012 , 12:40pm

I would not trust share tips for all the tea in China. I read, note and inwardly digest them for a future ponder. However, over the years I have on numerous occasions encountered tips which have miraculously appeared just prior to the shares in question dropping like a stone. I have a theory as why this happens but I must be brief as my lunch has just gone ping!

By way of example just take a look at Brightside. Sadly, I cannot attach a graph but for anyone interested, look up the price action in the early part of 2011 then look up some of the commentary published around the same time. In particular, look at the trading volume on 28/02/2011 and what followed thereafter. This was a textbook example of how stupid money moves into a share, thereby supporting the price while the smart money heads for the exits.

Many years ago I recall M&S being panned just as volume started to rise after the price had taken a beating. Again, the price was held down while the smart money moved in.

Let the reader beware!!

billyboy121 08 May 2012 , 1:25pm

Perhaps look at it like this, in the context of another investment class - imagine that you paid a sub to a local agent to recommend possible properties for buy to let investment. Once you received this tip sheet, you might look through it, circle a couple that look promising and go and take a look at them, think about how much any refurb might cost, any potential issues (damp, structural) what rental level they might yield, what the cost of the mortgage and any other expenditure might be and so on.

What you wouldn't (hopefully) do on receiving the tip is ring up the owner and offer them the asking price, no questions asked.

Tipsheets for shares are similar - some tips will be good , some will be bad. Tipsheets are useful for highlighting potential investments in the mass of those available, but not to be treated as 100% failsafe guides as to where to put your pension.


BB

compound200 08 May 2012 , 2:30pm
DashingDave123 08 May 2012 , 2:45pm

It seems common sense to me that if the tip writer could actualy identify shares that would do well he would invest his own money in them, make a fortune and retire to the South of France or somewhere. In reality the tipster knows no more than the rest of us which is why his results are random and he is tipping for a living rather than investing. There is quite a lot of truth in the Efficient Market Hypothesis, that share history and prospects have been thoroughly analysed by experts and everything known about the company is in today's price. Prices will continue to move in the future but only in response to unpredictable news and events. On that basis any share is as likely to go down as up and there is no sure way to pick future winners.

Netherwood 08 May 2012 , 2:55pm

You have to ask yourself why anybody would want to make you money? Share tips are in my view to be avoided. In my experience many tipsters already have positions and want to pump them up so they can sell. Alternatively tipsters may not understand the companies they are tipping. Look just because Warren Buffett has Tesco shares is not a reason to go out and buy them.

TMFDaddyO 08 May 2012 , 4:17pm

Nice article, Barry. It's great to share those experiences. Keep 'em coming!

dukindiva 08 May 2012 , 4:28pm

I think that many share tipsters are often misleading on purpose but I don't know how much they really effect the market. Institutional investors and hedge funds are the market makers.

I always wait (sometimes too long) and do at least some basic checks before buying. In my mind, if you have to move quickly the stock is too volatile for me, so I leave that to traders.

snoekie 08 May 2012 , 6:31pm

Tom, I disagree.

I have quite a few shares from tips read, and of those that I actually bought (I do some research, ponder, contemplate my navel), when the tip made sense to me, and about 95% of my 'tips' purchases have done me proud. Yep there were a few dogs, but massively outweighed by the winners.

And then there are those 'tips' that are still on the 'high seas' battling their way to port, still, perhaps, some way over the horizon, and I have a few of those................ with some quite tidy sums invested.

There always risks in life, even getting out of bed in the morning!

mnfinvest 08 May 2012 , 6:50pm
countingcrow 08 May 2012 , 8:35pm

mnfinvest - I agree with every word you say!

As for share tips, it's wise to be very wary. How many times does one pundit say 'buy' while another says 'sell'...

goodlifer 08 May 2012 , 9:29pm

DashingDave123
"!In reality the tipster knows no more than the rest of us"
If I thought I knew

jaizan 08 May 2012 , 9:32pm

The first flaw with tip sheets is that they tend to be written by journalists who have to publish according to their schedules. So there's pressure to write something, even if there are no good ideas. Also, it's often unclear if the journalist has a good track record at investing.

The best tips would be from investors with terrific track records, who also are under no pressure to provide tips. That's why John Lee's monthly articles are so good. He's made good money and can write about what he's bought, or not as the case may be.

goodlifer 08 May 2012 , 9:36pm

Sorry DashingDave123, finger trouble.

"!In reality the tipster knows no more than the rest of us"

Surely obvious to the meanest intelligence?

I may not be very bright, but If I really knew what the market, or any share therein, was about to do I'd have the nous to keep my big flapper shut.
For once!

dejw 09 May 2012 , 1:28pm

I believe share tips writers are driven by a numbe of factors.

- the writer is paid to write and it's easy to use press releases or publicity blurb to produce an article based on little more than hot air.

- the writer has an deadline and must write SOMETHING plausible or he's fired.

- the writer is paid, but does his level best to give unbiassed assessments.

I like reading tips, they are interesting. I used to teach MBA students and had to read and mark their dissertations etc. I find that I am better at determining if the writer has made genuine efforts or is just filling the page with words, diagrams, graphs etc.

Frankly, I find it easier to assess tip articles than to assess company reports.

DejW

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