Once you develop an interest in investing in the stock market, share tips will become a regular occurrence. Whether it is a friend from work giving you a heads-up, or a suggestion you read in a newspaper or online, these tips are usually relevant to the moment. If a stock is being spoken about, there must be some reason it is getting attention now. This is why I think share tips can be a useful way to find the best shares to buy.
Share tips worth heeding
The quality of share tips can be as variable as the quantity. Some will be winners, some losers, and that comes down to the quality of the source.
Many of the analysts providing stock tips online and in print are trained and regulated. Some of them have passed exams and registered with the Financial Conduct Authority in order to be able to give advice. They usually stick to what they know, only reporting on a specific sector or a small selection of stocks they know inside out. This provides a level of trust that you cannot get from a casual acquaintance. But even qualified tipsters do not always get it right. A share tip can give you a great starting point. However, you should always carry out your own research before investing money.
There will also be an element of luck. If a passing comment had led you to buy shares in AstraZeneca 10 years ago, you would be sitting on a pretty penny now.
Discovering the best shares to buy right now
When someone gives me a share tip, the first thing I do is look it up online. I look at its stock chart to get an idea of how long it has been listed and the direction its share price is moving. Next, I look at the company website a general overview of what exactly the company does. Checking the investor relations section for news releases is a good idea. I then find the price-to-earnings ratio, dividend yield, earnings per share, cash flow, and debt level. All this information helps me piece together a clearer picture of what the company is about and where it stands financially today.
Never take share tips at face value, but do not rule them out either. They can provide the perfect launch pad for the discovery of a new and exciting addition to a long-term investor’s portfolio.
Pump and dump
Share tips are sometimes used by unscrupulous individuals in a process called ‘pump and dump’. This is when a share is promoted to the point that its share price inflates. Then, those behind the scheme sell their holdings at a profit. It is highly illegal but still occurs, especially in online forums and social media. The AIM index is rife with these antics because it is not as strictly regulated as the FTSE 350 and admission is easier. It would be wrong to say avoid all companies on AIM as it contains many honourable constituents. However, you should be mindful when evaluating share tips of this nature. When considering where to invest money to get good returns I think stock recommendations can provide an excellent stepping stone to finding the best shares to buy right now.
