Getting Smart with Investment Advice: What to Look For and What to Avoid

If you’re new to investing, the basic problem isn’t finding advice. We’re overwhelmed by it. The real challenge is knowing whose advice you can trust. At the simplest level, the answer may be: nobody’s. The key is to understand where different types of advice come from, how they work and how to weigh them critically. With a bit of common sense and scepticism you can use these sources as tools, not rules, for making your own investment decisions.

Newspapers

Newspapers, daily and Sunday, devote space to business, investment and finance. They provide news, comment and advice. Serious newspapers carry company news, including reports of results from smaller or less interesting companies, which concentrate on turnover, profit, exceptional items and directors’ pay. They also have columns that analyse corporate financial results – for example, Questor, Lex and Tempus. These columns do not always make explicit recommendations to buy or sell but their message is usually clear.

Some papers also carry advice from stockbrokers. Journalists meet people – sometimes company management – review results, talk to brokers, analysts and commentators. In doing so they may come across companies that justify a better rating and are being ignored by the market. By highlighting these they may prompt a re-rating.

Tips like this can move a share, especially in a tight market with few free shares in circulation. The rise is not purely due to buying but also because market professionals read newspapers and anticipate demand by moving up prices. So by the time readers act, the opportunity may be gone.

It may still be worth acting on such recommendations if the reasoning seems sound. However, newspapers are less effective at spotting shares about to fall, possibly due to strict defamation laws. When they do report problems, it’s worth paying attention. Newspapers and magazines are also not always reliable at picking winners and very few can predict market declines. Read them but be cautious.

Magazines and websites

Specialist magazines provide an additional source of information. There are many useful business and investment magazines and websites including Interactive Investor, Money Week, Investors’ Chronicle, What Investment, Shares Magazine, Barron’s, Motley Fool, sharecast.com, yourmoney.com and bloomberg.com. General business journals include Fortune, Forbes and Bloomberg Businessweek.

Investors’ Chronicle’s chartist section requires extensive knowledge of the language and methods of technical analysis; without it one could well be little better off for being told ‘the current rally could conceivably take the index through its daily cloud and as high as the black falling trend-line which would likely result in overbought momentum’ or references to ‘a time-cycle turning-date’. But the pictures make it clearer.

Financial advisers

Advice from newspapers, magazines, radio, television, newsletters and websites may be readily available and some of it free, but investors still have to collect, sort, sift and test it to see if it’s useful. This is not only time-consuming but testing is tricky for someone inexperienced in the stock market. In theory a professional adviser can help. They can consider the investor’s preferences and produce tailor-made recommendations. A good adviser may build a better portfolio than someone without time to review every option.

Like everything worth having, it costs money, so weigh the price against the value. No sensible investor hands over their future without asking questions and testing answers against common sense. Just as a patient asks a doctor what the medicine does or a client questions a lawyer’s reasoning, an investor should ask why a particular financial course is advised and what assumptions it’s based on. This is where personal judgement matters. If you disagree with the adviser’s forecast, say so, so the portfolio can be adjusted to suit you.

Unregulated advisers have conned naive investors or sold unsuitable products (see the section on Scams).

Some small investors feel they can’t afford impartial advice even when they need it. To help, the UK government created the free Money and Pensions Service for private investors, either as an alternative or before speaking to an adviser (see https://maps.org.uk/; phone numbers: Pensions Wise – 0800 138 3944, Pensions Advisory Service – 0800 011 3797, Money Advice Service – 0800 138 7777).

When Advice Isn’t What It Seems

In an age of unlimited online content and viral commentary, not all advice is honest and not all sources are what they appear. It's crucial for investors to remain alert to misinformation, manipulation and fraud, especially when the message is emotionally charged or too good to be true. The following guidance can help you spot red flags and steer clear of costly mistakes.

Fake news

Careful investors should avoid being taken in by fake news, dubious rumours and conspiracy theories. This is especially true of online sources with unclear origins or motives:

• Avoid emotional language – either in the source or your reaction
• Think through what is really being said – don’t react based on first impressions
• Check the origin of the story: who is this person, how do they know, why are they saying this, are they likely to be knowledgeable, reliable, intelligent, impartial?
• Be sceptical of statistics, especially second-hand ones such as newspaper reports. Some have statistically dubious bases, some are intentionally biased, conclusions may not follow from the evidence and journalists may misunderstand or distort them. If possible check the origins and the producer of the figures. Even apparently independent think tanks may hold biases.
• Check all stories against common sense – does that seem likely, plausible, reasonable?
• Beware of conspiracy theories and, as American biologist Carl Bergstrom advised, ‘Never assume malice or mendacity when incompetence is a sufficient explanation and never assume incompetence when a reasonable mistake can explain things.’

This is useful advice for all information, not just financial.

Investment Scams

When it comes to fraud, common sense is essential. Unsolicited calls selling shares are likely boiler-room scams. If the deal sounds unusually profitable or safe, ask yourself: why me? Why hasn’t this been publicly reported? Are they authorised in the UK and protected by the Financial Services Compensation Scheme? Cold-calling to sell investments is illegal in Britain — hang up immediately. Don’t respond to suspicious emails or messages on social media, don’t share personal information and don’t call back using the same line. If you’ve given out details, contact your bank or card provider right away and monitor your statements. Ignore online ads promising high returns — they’re almost always fake. If it sounds too good to be true, it probably is. High returns come with high risk. Scammers often pose as professionals, using fake websites and names of real firms. They may claim you’ve entered a contract, threaten legal action or promise to recover past losses — all tactics to pressure and confuse. Many promote overseas shares or US Regulation S stocks, which are often worthless or restricted.

Victims often include retirees, inexperienced investors or people with recent windfalls. Losses can be huge — up to £1.2 million in some cases. Watch for red flags: up-front fees, urgent deadlines, secrecy or requests for personal details. If you suspect a scam, report it to Action Fraud (0300 123 2040) or the Financial Conduct Authority (0800 111 6768). Be cautious of phishing emails or fake calls from HMRC, the FCA or banks requesting money or information. Never click links or respond — delete them and verify separately using a different phone line. Scam messages claiming to reclaim bank charges are often used for identity theft. Signs include unexpected bills, credit refusals or debt collectors chasing unknown accounts. If this happens, visit the Home Office Identity Theft website for support and guidance.

In summary, there is plenty of advice available but little of it is disinterested and even that is not always right. So, listen to as many sources as you can, weigh them against common sense and treat them as one factor in your thinking, not as the final arbiters of your investment decisions. Remember, their criteria may not be the same as yours. As G. B. Shaw said, “Do not do unto others as you would that they should do unto you. Their tastes may not be the same.”

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