Share tips are everywhere: in finance articles, from ‘finfluencers’ on social media, taxi drivers etc.
But do these tips actually work?
Robin Powell has just written about this on LinkedIn and in The Times. Robin is a financial journalist and evidence-based investor. He’s worth following on LinkedIn for his insights.
His article referenced a new study evaluating if stock tips actually work.
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What the study found …
Researchers tracked 1,056 stock tips from 44 popular ‘finfluencers’, to see how the tips worked.
Their performance, compared with a global index, was as follows:
1 month later: no meaningful edge
1 year later: still no edge
3 years later:12.7% behind
The Conclusion:share tips are more ‘digital financial entertainment’ than a reliable source of returns.
Subscribers of The Times can read Robin’s article here. Alternatively, you can access the full study here.
A much bigger study …
A Swiss Finance Institute study tracked 72 million posts from 29,000 tipsters on StockTwits. The study found:
28% of tipsters were useful
17% added nothing
55%underperformed by 2.3% a month
And the worst-performing ones had morefollowers than the better ones! …
Why so?
A tipster’s real currency is attention: Views, followers, subscribers. Their success doesn’t depend on returns.
Glossy marketing and headlines get clicks. Careful and boring advice doesn’t get the same attention!
Social media rewards engagement rather than skill.
It’s not WHAT you invest in, it’s HOW …
Tips are about what to buy, eg the next hot stock or theme. Which is also how the trading educators operate.
Foundations first: proper diversification, matching your risk profile, objectives
A Core portfolio with Growth, Protection and Income
Minimal leakages: Fees, Inflation, Taxes
And afterwards: (optionally) individual stocks as a smaller component
Yes, I own individual stocks. And even rent out some for income via Options, which earn 1-3% in a month.
(many of our Options are on ETFs)
But stocks are a smaller part of my portfolio and sit on top of a solid Core.
So what actually works?
Robin’s conclusion matches mine. To maximise your sustainable returns, diversified index funds and ETFs do the heavy lifting.
The evidence says forget about stock tips, particularly those touted by trading shops, tipsters and finfluencers.
Maybe that sounds boring. But remember:
Steady Returns × Compounded = Spectacular
And what about the professionals? (which can include your work pensions and wealth-managed funds)
The pros have armies of analysts and research budgets of several £millions. I know this because I was on that side of the fence at JP Morgan.
The Investment Accelerator has transformed how thousands of people now invest. Creating diversified passive portfolios for Growth and Recurring Income.
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Time in the Markets always beats timing the markets
Stay Diversified
Minimise those leakages: Fees, Inflation, and Taxes
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About Me
Manish Kataria is a Fund Manager. A CFA-qualified professional with 18 years’ experience in investment management and UK property. He has managed investment portfolios for JPMorgan and other blue chip investment houses. Asset classes managed include Equities, ETFs, Bonds, Funds and Options. Within property, he invests in and owns a range of assets including developments, HMOs, BTLs and serviced accommodation. InvestLikeAPro was set up so anyone can invest like a pro.
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