July 21st, 2020
The “Hot Stock Tip Story” – Are You Getting All Details?
As Financial Advisors we often serve clients who are related or in the same family group; and naturally, they tend to “talk” about each other.
We keep everything confidential – so their stories are safe with us – but most times, we tend to hear more than one version of the same tale from different family members; especially when it comes to the latest “hot stock tip.”
A very common paradigm is the “hot stock tip story.” This story usually begins with a client who becomes impatient with our carefully planned investment strategies.
While professionally managed stock portfolios do well over time, problems can arise when inexperienced “investors” take a gamble with their money by making impulsive decisions based on guesswork and rumours (instead of analysis and experience).
A great example is one gentleman (Andrew) who got a little aggressive when he felt that he wasn’t getting enough of an immediate return on his investment. He believed that he could do better, so he withdrew $100,000 in order to purchase 10 stocks at $10,000 each.
Andrew immediately began bragging to everyone who would listen (including his older brother John, who is also a client of ours) that he had doubled his money on one of the stocks that he had heard about from a buddy on the golf course.
What Andrew didn’t tell his brother John, was that the other nine out of ten stocks he purchased based on rumours were either at zero, close to zero, or coming in at a 100% loss. John only got the exciting version of the story – and to this day, he remains unaware that Andrew was actually down 80% on his $100,000 portfolio, leaving him with only $20,000.
Fortunately, John decided to stick with our plan (despite the “hot stock tips” he was hearing), which saved him from taking a similar risk, and losing his money. This is a very common case study, which illustrates how people will filter out certain details when they recount their stock market stories – especially when they’re ashamed of losing money hand over fist.
Next time you hear a “hot stock tip story” from a novice investor, try to remember that you may only be hearing one version – and its accuracy has most likely been sacrificed in order to leave out some pretty embarrassing details.
If you’re wondering what your investment story should sound like, reach out to one of our advisors today.
- Jamie Geisler, CFP®, BA Econ Senior Financial Advisor
Spire Advisors of Assante Capital Management Ltd. / Powassan
*The case study mentioned in this article is based on actual scenarios but names and identifying details have been changed to protect the privacy of individuals. The case study is provided for illustrative purposes only to provide an example of our process and methodology. Past performance does not guarantee future results. The results portrayed in this case study are not representative of all of our clients’ experiences. Different types of investments involve varying degrees of risk, and actual results may vary materially than those portrayed herein. Therefore, it should not be assumed that the future results of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken in this article) will be profitable or equal the results portrayed herein. An individual’s experience may vary based on his or her individual circumstances and current/future market conditions, and there can be no assurance that any client will achieve similar results in comparable situations. The information contained herein should not be construed as personalized investment advice. Please contact us for additional information with respect to the strategies and/or investments described herein.
*Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.