How to Vet Your Investing Ideas

It's easy for an investor to fall for a good story. Strong headlines, new technologies, burgeoning industries -- these can easily lead to great stock ideas. But they can also lead to big losers. So how can an individual investor buy into the good ones and dodge the losers? That's where "due diligence" comes in. Study the company, read SEC filings, learn about management -- it's not rocket science, but it can be daunting and it can take some time.

One common shortcut is to see what the "smart people" are saying. Just be sure that the smart people you look to have your best interests in mind. Talking heads on TV are not working for you. Brokers usually make money on frequent trades, which is not in your interest. Even financial advisors often have the wrong incentives in place, and can easily steer you wrong. If you're trusting someone else to vet your ideas, you want to make sure that they work only for you, and that their compensation is aligned with your success.

If that's the case, it can help to begin by seeing what they have to say. Then it's on you to follow up and make your own decisions.

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Jason Moser owns shares of The Motley Fool recommends and owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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