Advising Ourselves (Part 4)

When do stock tips work?

Investment advice works best when people treat their investments like a business. If you are investing, you’re really acquiring future sources of cash. Some—like most bonds—come with contractual payments and a final date. Others—like tech stocks—come with a vague promise to begin returning cash to shareholders when the business matures. All of them, even government bonds, depend on the economy.

If you were running a business, you wouldn’t tune in to a general business show for specific advice. There might be some general principles, like human resource management or accounting, that are universal enough where general advice could help. But if you want advice tailored to help you, you want someone that will take the time to understand your specific situation.

Be aware of the biases of those who would advise you—their incentives, background, temperament, and experience. Advice is a dangerous gift, and there may be no good options. Someone who freely offers his opinion about fire may not have been burned yet. Be careful.

Above all, don’t be afraid to ask hard questions. Good opinions take a long time to form. They should be grounded in economic and financial reality, and, once implemented, be fairly boring. Good investing is like good gardening—it takes time to bear fruit. But it’s worth the wait.

Douglas R. Tengdin, CFA

Chief Investment Officer

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