Treat brokers' tips warily

Monday 15 November 2004

By The Landlord

Q: I cannot agree with your expressed belief that, in share investing, the available knowledge is not useful to the ordinary investor. I suggest that it depends where you seek it.

I am an ordinary share investor and have neither the desire, resource nor skill to undertake meaningful market analysis, but I can manage to digest the weekly summaries and other advice available from my sharebroker, and make reasoned decisions on that basis. Not infallible, but better than do-it-yourself.

Diversification is fine, but requires a certain critical mass in the portfolio, and coping with 15 companies is about my limit - stock picking is inevitable.

I suggest your correspondent seeking knowledge in last week's column consider this approach.

A: Let me take you back a few years, when I was studying for my MBA at the University of Chicago.

One day, the professor said that share tips from sharebrokers to their clients were, basically, useless. By the time the clients heard that a company's prospects suddenly looked brighter, the big institutions had long since rushed in and bought, and the share price had already risen to reflect the new information.

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