The Folly of Trading on Tips

One of Livingston's favorite admonitions to traders is that they should not speculate on the basis of tips, no matter how trustworthy the source seems to be. He suggests most tips are generated by insiders who are using them to manipulate the market to their own ends. Livingston tells many tales of foolish traders who chase tips and also bemoans the fate of the general public, whom he believes is the most hurt by them.

Livingston also enjoys stories about wiser traders (including himself) who do exactly the opposite of what the tips suggest. They may act in this contrary way because they suspect the tips are false, or because they wish to test the market to determine if they are accurate. The point of these stories is that one should verify any tip, either through market behavior or by a thorough investigation...