What To Do About That Hot Stock Tip

Wendolyn T. Forbes

October 28, 2022

by Wendolyn T. Forbes, CFP®

Have you ever found yourself comparing your financial situation against another’s and feeling either congratulatory or jealous? In response, did you buy something that helped you feel better for a few moments then, soon after, experience buyer’s remorse?

Back in the day, such an experience was described using the phrase, keeping up with the Joneses. When you compare yourself against others—what they have versus what you have (or don’t have)—you may find yourself buying things trying to become like them. Ultimately this is an ineffective solution and often results in further frustration.

Although this often happens with material possessions, it happens with investments, too. Sometimes, people will talk with their friends about securities, or stocks, mentioned on a news channel or in social media. Usually, it comes up as a passing comment at a social event or private gathering: “Have you heard about [name of trending security]?” This question is usually followed by what is known as a stock tip. Some people may make mental notes and later go to their online investment brokerage firm or call their investment professional to learn more. Some people may dismiss the comment altogether. However, the experience presents a unique opportunity to learn about investing.

Prior to acting on any stock tip, you need to take a step back and ask yourself at least three questions to determine its feasibility and whether it is worthy of your investable dollars.

First, what is your current financial situation? Look at your accounts and where you are in relation to your emergency account being fully funded (6-months of living expenses if you are single; 3-months of living expenses if you have a partner), your debts being manageable (credit cards being paid in-full every month), your retirement account receiving the maximum contribution for the year, your short-term financial goals being on track, and having extra money available to invest. Investing involves the risk that you may lose all, some, or none of the money you have invested. You must understand that there is no guarantee of a return on your investment or even that your money will be returned to you.

Second, what do you know about the company that issued the stock? Take the time to learn more about it. If you have an online brokerage account, research the company. Read the top headlines to learn why people may be talking about it. Look for details about the age of the company, the type of industry it represents, and the type of products or services it offers. Note the 52-week range of the stock price and trendlines for the past few years, whether the price of the stock has recently increased or decreased, and whether the value of the stock has improved, deteriorated, or remained steady over those time periods. Consider whether the price of the stock is affordable. Finally, look for third-party reports such as those provided by Morningstar to provide an unbiased viewpoint about the stock. One resource is the National Association of Investors (NAIC) which is a 501(c)(3) nonprofit organization that offers resources for people interested in learning more about investing. You may learn more about them through their website, https://www.betterinvesting.org/.

The third question to ask yourself is this: how does buying or not buying this stock impact your short-term goals and long-term financial plan? Consider purchasing this stock from the perspective of your long-term financial plan and how it could impact your goals.

At this point, you have invested your time and uncovered a considerable amount of information. Acting or not acting on this stock tip is an intentional action. Bravo to you for choosing to approach the news of this stock tip rationally and avoiding the act of buying on impulse.

Whether with material goods or financial products, consider approaching tips—either the silent ones voiced by the amassing of goods, or the vocal ones voiced by persons at a party—with intention by asking yourself these three questions. You may be surprised by what you discover.

Wendolyn Forbes is a CERTIFIED FINANCIAL PLANNER™ with Wealth Transition Finance, A Member of Advisory Services Network, LLC, where she offers financial planning and investment management services for either a one-time or on-going cost. For more information about Wendolyn’s financial services practice, please visit her website at www.wtf-asn.com.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Originally published in Rumble by Smoky Mountain News on October 26, 2022. https://www.smokymountainnews.com/lifestyle/rumble/item/34565-what-to-do-about-that-hot-stock-tip