I have observed that people have a great fascination for the tips they get from others to invest their money. Without investigating the company’s profile, its financials, management, and growth prospects, they just invest their hard-earned money blindly and regret later when the stock price tumbles down heavily.
Ironically, when they buy a smartphone online, they choose to evaluate its specifications closely, compare its prices on other available platforms, take feedback from the ones who are using it already and then buy it with due diligence. Even if they get a tip that Samsung Galaxy is better than Apple iPhone, yet they choose to do their proper homework before taking a buying decision. Shouldn’t they replicate the same behavior while picking stocks as well?
My friend, your own decision to buy a company’s stock is far remarkable than buying it from someone else’s tip. Let me give you a better example.
During the dot-com bubble in late 90’s, when the internet companies with dot-com domain name were at their peak, people were investing in those companies and earning quick bucks. It purely worked on the valuation system. People believed that just because it was a dot-com company, it had to move up higher and higher. Without doing any groundwork, investors invested their billions in dot-com companies and hoped to become get rich quick.
There was one quality company which refused to perform better than those dot-com companies. Its name is Berkshire Hathaway. Its chairman, Warren Buffett, refused to invest in those companies. He was getting a lot of tips from his investing arena about investing in so and so company. In spite of enormous gains made by the companies, Buffett refused to invest in them. He chose to ignore the tips and worked on his own judgments. In fact, his own company’s stock came down to half its value.
Investors refused to invest in a company which had quality growth prospects, superior management with Warren Buffett as its chairman and available at discount. They preferred dot-com companies over Berkshire Hathway and aimed to get filthy rich in a night.
Eventually, the bubble burst and the so-called wealth multipliers dot-com companies filed for bankruptcy. Millions of investors lost their hard earned money. Had Warren Buffett invested, he would have lost his money too.
The point is, don’t follow the herd mentality. Never ever believe in the opinions of others while investing. Better to stick to your own decisions and avoid doing things mindlessly.
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