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A Tip About Tips

This sounds like a contradiction, but it isn't-to earn more from your investments, you must do less

In the last week of September, SEBI passed an order against a Kolkata-based broker for giving stock tips on a website while himself doing the opposite of what he was asking his readers to do. A SEBI investigation has found that Mathew Easow, who has been fined Rs 20 lakh in the order, would recommend stocks to visitors to the website moneycontrol.com after he himself had bought these scrips. When the prices of these stocks would move up after his tip appeared he would sell them, sometimes at a far lower price than the 'target' price he had publicly pronounced.

The pursuit of tips is as much a part of some stock investors' life as it is of restaurant waiters. Of course, the whole business has become far more sophisticated now than it was in the bygone days when a tip was likely to be a few words hurriedly whispered by one jobber into another's ear. Nowadays, tipsters call their pronouncements 'research' and the whisper seems to have been replaced by the internet and the business media. Of course, publishing tips and rumours on a popular website makes them far more effective than they were in the old days. However, unlike the whisper in someone's ear, the internet leaves an audit trail and eventually helps expose tip-mongering as the shady activity that it really is.

While such sordid tricks can be easily avoided with a little more vigilance on part of the media itself, there is actually a far more fundamental conflict of interest in the activities of all of us who are part of the investment media, be it in print, on TV or the internet. To make money in this business at all, the media must be read and watched by a large number of people. And that means they must be interesting and entertaining and they must constantly have new things to tell you. This itself is a problem. It's a problem because good investing is boring. On most days, sometimes for weeks or months at end, nothing actually happens that has any real relevance to the long-term health of your investments.

Yet TV channels, newspapers, magazines and websites must be filled up. To make money, they must pretend that almost every hour, something is happening that you must know about and act upon otherwise you will lose the race. Everyday, viewers must be told about the great new investments in which they can make money and the dangerous old investments where they will lose money. Of course, the reality may be the other way around.

The sad part is that usually it is not the individual messages themselves that are dangerous but what is implied by the very existence of a continuous stream of messages about investment. The mere presence of this noise factory tells investors that investment is an activity that needs continuous action. Nothing could be further from the truth. The reality is that once you have understood a few simple things about investing and taken some basic actions, you need to do almost nothing. Investors will best serve their interests by not thinking about their investments more than once a month and not doing anything more than a couple of times a year.

I know this sounds like a contradiction, but it isn't-to earn more from your investments, you have to do less. And most of all, you have to listen less to the 'tip' industry. Your own good sense will serve you better than some made-up story.