The 4 Types of Stock You Should Avoid Investing In
Author: George Davis
You need a lot of discipline to be successful when investing in the stock market. We share the four types of stock you should avoid investing in right here.
You need to be disciplined when you're investing in the stock market because that allows you to pick ten to fifteen stocks to invest in out of the thousands listed in the market. You will need to learn to say "No" when investing in the stock market, which is easier said than done. There are some stocks you should avoid investing in at all costs, and we will highlight four of them in this post.
1. Low-Liquid Companies
You will notice that the price of some stocks will fall continuously, and investors will struggle to sell these shares as there are limited buyers. It can be stressful to exit from a low liquid company, which is why you should avoid investing in shares of low-liquid companies. You should steer clear of companies that have a low liquid daily trading volume.
You must check the company's liquidity before you invest in its shares, and you can do that by identifying the difference between its Ask/Bid price. If the difference is small, the liquidity will be high, and therefore, should be avoided at all costs.
2. High-Debt Companies
You don't want to invest in a company that has accumulated a large amount of debt. It's akin to throwing your money away because it will be harder to recoup your investment. Companies with a lot of debt are struggling, and the value of their shares will only continue to plummet. Therefore, it is in your best interests to avoid investing in shares of companies with massive debts.
3. Falling Knife Category Companies
Your mother would have taught you that you should never try and catch a falling knife. That can be applied to stock market investing because you should avoid investing in companies whose share prices are falling significantly and continuously. You don't know why the share prices are falling and why the company is struggling in the market. There are thousands of other companies you can invest in, and there is no point in hurting yourself by investing in falling knife category companies.
4. Low-Visibility Companies
There will be some companies that don't have their information readily available. You will struggle to learn much about them from financial websites or on the internet. These are low visibility companies, and researching about them can be a tedious task. There are also higher chances of coming across unreliable information. Therefore, it is in your best interests to avoid low visibility companies, as they haven't made any effort to share valuable information for investors.
1. Abercrombie & Fitch Company (ANF)
2. Nu Skin Enterprises, Inc. (NUS)
3. M.D.C. Holdings, Inc. (MDC)
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