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5 Drawbacks of Following Investment Strategies of Celebrity Equity Investors Research Team | Posted On Saturday, July 07,2018, 03:45 PM

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5 Drawbacks of Following Investment Strategies of Celebrity Equity Investors




Investing in stocks can be highly rewarding. On the flip side, it is also very risky. One wrong move and your investments can go for a toss. The stock market has the power to destroy your entire capital.

SEBI has allowed celebrities to endorse mutual funds. Celebrities get paid for it. They are doing their work. Does this mean you blindly follow and imitate them? Think twice! Before Doing So.

It is always a ‘big thing’ to imitate celebrities. It is called the ‘in thing’. In the glittering world of entertainment, not everything is shiny. Not all superstars make the best use of their wealth. They blow up money endlessly on fast cars, luxurious homes that don’t always have a resale value.

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Drawbacks of Following Investment Strategies of Celebrity Equity Investors


Some celebrities have made smart choices on where to invest their money. It’s not always wise on your part, to follow their investment patterns. Here is why:


1. Price:


When news of celebrity investments come out, you run the risk of paying high prices on these shares. Maybe the celebrity had bought the shares long back, when they were doing well. This means its late news now. You are investing in such stocks, when prices are higher than when the celebrity made the purchase. Chances are, the stocks are no longer doing well. Hence, the celebrity exits at higher prices when the volume of the stock increases (citizens heavily purchase these stocks). Prices will fall drastically when the celebrities exit the stock after making a killing in the markets.


2. Is too little too late?


As companies report shareholding patterns on a quarterly basis, there could be a scenario where a celebrity investor pulls the plug and retail investors get to know about it only after three months. The celebrity investor might be selling off his shares in bits and pieces, which you and other retail investors are not aware of.


3. Investors are unaware of entry and exit strategies:


No celebrity reveals all their secrets. Celebrity investors do not reveal all their investment strategies and thoughts to the media. They do not disclose important strategies relating to their entry and exits in stocks. Celebrity interviews are for entertainment and general motivation. So, do not get all excited and pour your hard earned money into stocks without doing your research.


SEE ALSO: How To Save Income Tax Through Your Family Members


4. Blind faith:


Blindly following the herd is probably the worst thing to do. Stocks and shares are ruled by speculation. Do not invest blindly, without doing your research. Cut the risk and save your money. Celebrities have deep pockets, do you?


5. Timing:


Do you know how long a celebrity is planning to stay invested in a stock? Are they planning a long-term investment or a short-term one? Usually, celebrities do not say invested for the long-term. They go according to the market conditions or sell when they need the money. You might come to know about the celebrity investment a little too late, when the stock has lost much of its value.


6. Allocation:


Celebrities have deep pockets. They may invest Rs 10 Crores in a single stock. Can you? What if that particular stock is a whopping 75% of your investment portfolio? A dip in stock prices hardly affects the celebrity’s portfolio, given the size and percentage of allocation. What about your portfolio?


The final word:


Do not imitate everything that your favorite celebrity does. Do your own research. Study the shares. Study the company. See how it has performed in the past. Go through the company websites and find out details on profits over the last few years, their product lines, their dividend payout, corporate social responsibility activities, management, and so on.  A good celebrity does his homework, before endorsing a product.

Be Wise, Get Rich.

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