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  • Doug Oosterhart, CFP®

Should You Take Investment Cues From Billionaires?

Getting stock tips and investment tips are as old as time. But do they have more value if they come from billionaires?


People often look to billionaire investors to the likes of Ray Dalio, David Tepper, Stanley Druckenmiller, Jeffrey Gundlach, etc. for their takes on the market (side note, the reason I didn't include Warren Buffett in that list is that he doesn't generally offer his thoughts on the short-term movements in the market). I'll refer to these people as FURU's (financial gurus).


There are a few items to think about before taking action on investment thoughts of billionaires:


1. They don't tell you when their minds change - which can be at any time for any reason.


One day you may see or read an opinion of a FURU in the media. The next day, they could change their mind based on something they see and not tell anyone. They don't really care about your 401(k) or my brokerage account. They care about making money for their own net worths, funds, ego, etc. At the end of the day, they are speculating what the market may do in the short-term, but they also know that they owe nothing to the media to say when they've changed their minds.


2. They don't tell you when to get out (or get in, for that matter).


Winners can turn to losers and losers can turn to winners. If people always sold at the top and bought at the bottom, then investing would be easy and everyone would be rich. The problem is, even if a stock or investing tip is correct - if you don't take profits (or cut losses early), it could destroy part of your portfolio. If you choose to speculate, that's fine - just have a plan (in advance) to cut losses and take profits.


Peoples' minds generally go to investment tips or trades that are wrong. For example, "so-and-so said to buy XYZ company and now it's down 15%." But what about those that called a market top back in April or May? We know the market went down in March and has since rebounded. A lot of FURU's said the market was overvalued in May. Hindsight being 20/20, we know that was the wrong call thus far. Simply put, no one knows what will happen in the next day, week, month, or even year. Although we value the opinions of the FURU's, each investor has to make choices in line with their own specific goals.


3. They're usually investing with different goals that you and I.


For example, they can speculate on anything with minimal risk. You and I may *need* our money in a specific amount of time for a specific reason. Meaning that our goals are very different than theirs. They might be speculating on something very specific for a fixed time frame. If they lose, it won't hurt them at all. If they win, it might be a big payday. If they lose one million dollars on a trade, they can shake it off. A lot of investors can't handle that type of loss. These FURU's are also generally not investing for their retirement like you and me.


All in all, it's important to note that investing tips from anyone need to be taken with a grain of salt in most cases. If there is a portion of your portfolio that you're using to speculate and/or hit "home runs" that's fine. Just keep in mind that that is the goal of that separate portion of your money. Know the risks, the potential rewards, when to cut losses, and when to trim gains before making the trades.


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