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Seven Steps for Handling Stock Tips

  • If we still haven't raised any red flags, then step six is to have a look at the company's Web site. A slow-loading, ugly-looking site is a very bad sign -- especially for a technology, Internet or telecom company. A lousy site suggests a shell company with no true assets or products. These are, not surprisingly, good stocks to avoid.
  • If all these steps haven't dampened your enthusiasm yet, then go to step seven: Order an investor relations package from the company. You want to receive something professionally written on high-quality paper with glossy photos. It should arrive quickly (but not by express mail). It should contain no typos or printing errors, and certainly nothing that looks like it was quickly and cheaply photocopied.

Note that you can do all these steps without even getting into the fundamentals of a company. The goal is to quickly eliminate the dogs before you waste a lot of time or money on them.

This entire process of reviewing a tipped stock should take you anywhere from 30 seconds to several weeks. Start doing this on a regular basis, and you won't get all hot and bothered every time you hear the next great stock tip.

And that can save you a lot of money.

Barry Ritholtz is the chief market strategist for Ritholtz Research, an independent institutional research firm, specializing in the analysis of macroeconomic trends and the capital markets. The firm's variant perspectives are applied to the fixed income, equity and commodity markets, both domestically and internationally. Other areas of research coverage also include consumer, real estate, geopolitics, technology and digital media. Ritholtz is also president of Ritholtz Capital Partners (RCP), a New York based hedge fund. RCP is driven by the analysis performed by Ritholtz Research. Ritholtz appreciates your feedback; click here to send him an email.

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