Developing an approach to a 'tip'

What I did when someone suggested a stock to buy.

This is not uncommon. Your friend or a stranger will suggest a stock to buy.

My approach has always to take note of it. I do not dismiss these 'tips' straight off, unless I am very familiar with the stock already and have a preexisting valuation or opinion on this.

The better approach would be to just have a look at their 'tips'. During your free time, have a look at the stock's fundamentals. It only takes you a short time to decide whether you wish to study the stock more thoroughly or not.

Do not just accept tips from the professionals or the 'knowledgeable'. Embrace also the tips from the most unlikely person, the taxi driver, a cleaner, or a factory worker. You may sometimes be surprised the tip led to a 'gem' stock for you to invest in.

Three years ago, a stranger casually remarked that Company X's new business has started to prosper after a few years of slow growth. This company was a poor performer for many years. Many investors would have lost money in this stock for a prolonged period. It was a definitely shunned counter on KLSE. In fact, many investors would not even touch this stock due to their unpleasant previous experiences. Few had kind words for this company even in the discussions in the blogs. Various negatives were thrown up - it was either the quality of the management, the nature of the business, blah, blah, blah...

Anyway, looking at the fundamentals of this Company X, it was obvious that its revenues and earnings were growing strongly then. It was generating a lot of cash. It was also improving on its efficiency. Investing into this company over the last couple of years had been rewarding indeed, even though 2007 -2009 was a severe bear market.

What led me to invest in this stock? A casual remark from a stranger. Herein lies the lesson of this post.

Any tips? :-)