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The Best Stock Tip I Ever Received

By Dr. Steve Sjuggerud
Wednesday, December 27, 2006

Steve Sjuggerud’s note: Today’s DailyWealth is the second in our holiday series of issues written to help make you a better investor. For the best stock tip I ever received, read on...

When it comes to hot stock tips, it’s either a bum insider tip (which could cost you a bundle) or it’s a good insider tip... in which case you’re then guilty of insider trading.

In either case, you really come out a big loser.

I once wrote in my newsletter about my one and only experience with what I believed was a “hot tip.” I called it, “True Confessions: How I Lost It All In A Day.” It details the story of one of my first experiences in the financial world, when I started out at a brokerage firm...

It went something like this: “Psst... we know IBM’s earnings numbers are going to be bad tomorrow... so we’re all buying put options to capitalize as it crashes,” my colleagues said to me. I caved in to the pressure and bought as well... and soon after I did, I was dreaming of where I would spend the money.

The whispers were right – IBM’s numbers were horrible. AND they were wrong – the share price soared as Wall Street cheered IBM’s restructuring plans. I’d never seen a pile of my own money vanish so quickly in my life. And it was a great lesson for me.

I learned that there is no such thing as a “hot tip” from an insider. I also learned that these guys at my brokerage firm really didn’t know anything. Oh, sure they talked big... but they were just guessing. Time and again, they had great story after great story... and time and again they lost money.

Even The Good Ones Aren’t Worth It...

Then, not long after, some guys in the brokerage office got taken in for insider trading. They actually KNEW something once! (It was very similar to the Martha Stewart case.) And what did it get them? A TON of trouble!

What a great lesson for me to see firsthand. And – fortunately – it didn’t cost me too much in the grand scheme of things.

The first lesson was that – no matter how “inside” the story sounds – most hot tips just don’t pan out. The second lesson was that your life gets turned upside down in a hurry if an insider tip you acted on actually turns out to be true. So ultimately, I formulated my own idea of the best investment tip:There’s no such thing as a hot tip.

Either you lose money or you go to jail... those are the only two possible outcomes. So the next time someone passes along a hot tip that smells of insider information, politely thank him. But please, don’t trade on it.

Good investing,


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