Recently one famous business journalist said ‘if a guy came up to me and ask for a tip…I will slap him’ – well effectively this is what she said. It would perhaps be the best thing that she could do for him. It will save him from losses and heart burn.

That brings us to the basics – whom should you ask for a tip?

Television anchors? Editors? Brokers? Investors? Traders? – I do not know. I do not remember asking anybody for tips, but I have had discussions about many shares with many many people.

Let us say I meet Rakesh Jhunjhunwala and ask him for a tip….and he tells me “X share looks good at its current price of Rs. 4500′.

I need to ask myself the following….

• do I know what price did he buy it at?
• will we have the same moat at today’s price?
• is he trying to talk up a share that he needs to sell?
• does it really matter to him if I buy or do not buy 100 shares?
• does it really matter to him if I buy / sell/ short 100,000 shares?
• will he call me BEFORE he sells the shares?
• does he talk to the management on a regular basis?

etc etc.

There is no way how I can ask him all these in the 24 seconds that I get to meet him, right?

It is far more important to know about YOURSELF first and then about the company whose share that somebody wants you to buy. So if I were to tell you that MRF is a good buy at Rs. 3400…would you have bought it? And if you had bought it would you have stayed invested till its current price of Rs. 80000? If yes you would have had a great IRR…but what happens if you had sold it off at Rs. 4400…because you were making ‘1000’ per share and you were very happy with that return?

So getting a tip is useful, but not sufficient. You need to get a good tip and have a great conviction about the tip. It is very, very difficult to have conviction in a person whom you personally do not know. I cannot imagine buying a share just because somebody told me and then holding it for say 30 years. There is a good chance that I will sell it off as soon as I make some decent money – or worse if I were to make some losses! Conviction to hold on to a share HAS to come from your own research, not from some STRANGER’S conviction.

Far more importantly, you do not know whether the person who is recommending that share to you is still holding. What happens if MRF had gone up from 3400 to 28000 and then fallen to Rs. 12000? Would you have panicked and sold?

Tough one, right?