Episode #9 – Barber Shop Advice

Have you heard of Barber Shop Advice?

Now before you get all over me, I’m not disparaging barbers around the globe.

What it refers to is the stereotypical barber shop where gossip flies, oh, and let’s not forget the beauty parlors too, it’s just the gossip from there may not be of a financial nature.

I’m going to get myself into trouble here aren’t I. Now, go easy on me, we all know these are just stereotypes, right?

If you get a “hot tip” most likely it’s long gone before the rumor hit the streets.

So I’m listening to a financial channel – they were talking about stocks.

Guy calls radio station –

Said he found this little unknown obscure stock – thinks it will be a hidden gem – says no one knows about it and he just stumbled across it.

First off, can you imagine that? No one knows about it….in this day and age….maybe what he should of said is no one cares about it or wants to buy it.

There is a big difference between a stock going nowhere and an undervalued stock.

The host seemed all excited for him and I’m not so sure after the call if the guy revealed what the stock was to the host.

I’m still scratching my head as to why the host thought that was a good idea???

Contrast that with a undervalued stock.

Could be undervalued because of an event, a market cycle, change in management, new product launch, and a hundred other reasons!

However, this should be a company with a long-proven track record, good earnings over a decade or more

Has what Buffet calls a moat – this is essentially a competitive advantage, something that would make it hard for others to compete against

And finally, for some reason, the stock price has come down quite a bit, yet long term, this company should come out of their event.

Maybe I’ll give the caller on the radio show the benefit of the doubt and assume this is what he meant.

Suppose you found some obscure small company that no one was paying any attention to, would you buy it?

Who knows, maybe he was getting his hair cut and heard his barber talk about this company, and went home and found a gem…..

That is called barbershop advice and in so many cases it’s worth about as much as the hair on the floor.

What made this all the worse to me is the talk show host seemed to be just as excited about his find as the caller was.

I thought, what? Does this talk show host have a clue?

No mention of how markets work, even the simple stuff like, supply and demand are the driving forces behind the market, and no matter how good a stock may seem to be, if no one is buying it, then it’s not moving!

If I’m the only guy who knows about this great company how is anyone going to buy it?

It’s essentially because others know about the company and like it that drives the prices up.

This guy could be sitting for decades with his little secret….

Moral of the story is, be careful where you get your advice –

Barber shops and talk shows may be on about the same level of advice when it’s all said and done.

Be educated and empowered to make your own financial decisions – chances are you’ll do better than 99.9% of the financial advisors and barbers out there – by understanding money and investing.

As always if you have any questions, feel free to shoot me an email at dan@wisemoneytools.com

Look forward to seeing you again –

Take care!

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