You should never listen to anyone except yourself. Blindly trusting people, especially for financial decisions almost always leads to disaster. In fact, for things related to money, you should just ask people about where to get information, as opposed to what the information is. For example, instead of asking your friend what are good stock picks, you might ask where are sources to learn more about stocks. Then do your own diligence from there.

Consider all the situations below I’ve encountered that I’ve lost significant money from.

Asking a successful friend about good stock picks. Here’s how you’ll lose money:

  • You don’t know your friend’s portfolio in detail. Thus, you don’t know if they are actually successful or not.
  • Past performance does not predict future performance. How do you differentiate their past performance from luck vs. skill?
  • The wrong bet-sizing at the wrong time listening to this successful friend can lose you a lot of money.

Following an influencer who has a great track record for crypto picks. Here’s how you’ll lose money:

  • They’ve no incentive to help you, so you’ll be a victim of a pump and dump if you listen to them. You’re the product they’re moving.
  • Everything on the internet can be manufactured, including track records. They can just delete all previous bad calls and keep the ones that worked out.
  • Being good at one thing (building an audience) doesn’t mean they’re good at another (picking crypto).

Listening to a friend who’s made 20% gains in a week on crypto by investing in a suspicious fund. Here’s how you can lose \$20K+ listening to this “friend”.

  • 20% gains week-on-week is unsustainable. Don’t be stupid.
  • If it’s a ponzi scheme, you don’t know if he’s part of the ponzi and just trying to take your money.
  • Just because your friend has proof of profits, doesn’t mean it’s not manufactured.
  • And even if the profits are real, you never know when the music stops for a ponzi scheme, so you shouldn’t invest because you’re trading limited upside (due to eventual collapse of the scheme) for max downside (you lose all your money).

Getting a referral from a friend for a property manager loses you money like this.

  • The property manager (PM) might just treat them better than they treat you, resulting in worse performance for you.
  • Your friend might heavily microamange this PM to get them to do their job and thus gets great performance from them. If you’re more of a hands-off investor like me, you will get very bad performance from the same PM.
  • Your friend could have lucked out with a property where they haven’t run into any vacancies nor any other bad situations. You could have a more challenging property. A moronic PM would do really well in a hassle-free property, but will lose you tons of money if you’re just ‘unlucky’ with your property.

In sum, “referrals” and trying to shortcut Doing Your Own Research is a surefire way of losing money. There’s way too many hidden factors when others give you advice that it’s not worth skipping doing your own due diligence (DD). As rules of thumb:

  1. Most people are wrong about most things. Don’t ask for referrals.
  2. Authority shouldn’t be a proxy for good information.
  3. Nothing can ever substitute DD and your own research.

Exception To The Rule

You should listen to people if the downside of listening is extremely limited. And also if the question you pose is fairly simple. For example, if you ask someone where the bathroom is and they tell you: there’s no need to download the Flush app and cross-reference to see if there’s a bathroom there; you can just go. Another example: asking a friend for recommendations for a \$20 purchase–if they’re wrong, you’re out \$20. If they’re right, then you saved time having to do DD on buying that product.

DYOR

Making decisions based on your own extensive research = higher confidence on your decision. Conversely, you can never be sure how much research another person has done.

If you’re wrong, learn from it and you’ll do better in the long run. If you get a “referral” or listen to someone else and they’re wrong, the only thing you’ll learn is that you should reread this post.