What to Do When a Friend Asks You What to Buy

I was sitting in the dining room sipping on cabernet watching the girls make fools out of themselves playing “Just Dance” on the Wii in the living room, when one of my friends comes over and asks me about the stock market.

“Are we going down?”

“No one really knows.”

“So, what should I buy.”

… I hate that question.  “Well, I wouldn’t get too excited.  We are stuck in this 400 point channel on the Dow.  You might get tired if you buy here.”

Well, I’m pretty sure you all have had that conversation with an acquaintance.   My advice to you is to not give any advice.  At least, not a specific one.  There’s something about giving stock tips to friends that never work.  Especially now, when the market is so indecisive, it’s hard to openly say, “You must buy AAPL now.  They are coming out with a new phone!”  Or, “Short Priceline, they are so overbought.”  The truth is you may be right, but giving out one tip gets you no where.  Why?   Because let’s say that one tip does come out right, your friend is going to 3 more wrong trades and now he’s messed up.  This always happens.  The reason why is because they aren’t really equipped with the knowledge and emotional control to be a trader.  I know many of you who read iBC definitely have that ability, so it’s easy for us to offer tips to one another because our advice is more like a community screening for stocks, which means after we poll one another we use our basic skills and intuition to take the potential trade to the next stage.  Your every day friend or coworker that asks for a tip more than likely will take everything at face value and jump right in.  Worst case scenario is that the stock tanks, and by correlation, so does your friendship.

So, the next time someone asks you what to buy, do this… 1)  be vague and broad, tell them you like a stock but you are observing it in the context of the market.  2)  Opt instead to talk about the industry and the overall condition of the market.  For example, I told my friend that the market right now is too volatile and that capital preservation is of priority.  It’s kind of like that catch a fish / teach how to fish proverb.  The fact that maybe 9/10 of your friends do not have the ability to short stocks, will probably mean they won’t have the extra ability to hedge a position fast enough, so be careful with telling them to get aggressive during bipolar markets.   Believe me, this market we are in right now can and will move fast on the down side. 

So, why would I bring this topic out?  Well, I always wanted to talk about it because I was getting tired of people bothering me with stock tips on the basketball court, while I’m playing Wii, trying to catch a wave, or laying in the hammock.  I just feel those are my away from the market times and getting away from the market has always been a skill of mine to trade better in the market.  And of course, knowing how to make an intelligent response to a curious friend that wants to invest will actually make you more confident too.  While you are giving advice, you kind of take the role as a teacher and no matter your age, when others start to respect your opinion you feel more confident in your trading ability and you also reinforce good trading practice when you give it to others. 

Now that I got that off my chest, go short PCLN.

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