Recommendations

I l @ ve RuBoard

When people learn you have begun your investment career, "experts" will begin to crawl out of the woodwork. In all fairness, a significant number of recommendations you receive will have true merit. People who discuss the companies they work for are certainly in a better position to discuss their internal structures than the average person on the street.

TIP

A recommendation is advice or information, sometimes unsolicited , received from other people who may possibly have better insight into the stock than you do.

Furthermore, your friends and family may be able to provide real insight into a company and its products and services with which you may be unfamiliar. When deciding whether to invest in Home Depot, for example, I asked a friend of mine who is an engineer to tell me of his experiences with them. I write financial books; I couldn't hang drywall if it came up and introduced itself to me. After our discussion, however, I felt much better about my final decision.

I asked my brother for much the same kind of information before making an investment in a video game stock. I don't play video games, but he does extensively. My discussions with him enabled me to make an intelligent decision about which games were hot, which systems had problems, and what innovations were being anticipated by consumers.

The other side of the coin is best illustrated by a great commercial currently running on television. A young guy walks up to a very distinguished gentleman in an art gallery and whispers to him, "I overheard your stock recommendation last week and put all my money in XYZ stock." The older gentleman replies, "Good for you. They will be the only company authorized to produce Widgets once the Martians take control of Earth," as his nurse leads him back to the home.

The moral is obvious: Recommendations are a wonderful source of information as long as you know their source and the recommender's expertise on the subject.

TIP

Which recommendations merit further research and which are duds? Ask the recommender, "Why do you recommend this company?" If the person has a concrete reason (personal experience with the stock, product, or service), I'll look into it. If the person answers, "Someone told me it was a good investment," it's a dud.

I l @ ve RuBoard