4 Common Types of Stocks That You Should Avoid Investing In

Planning to invest in stocks? Avoid these four stocks 


Stock market investments demand complete commitment and discipline backed by extensive market research. Making the right choice and skilfully handling your portfolio will automatically translate into great success. Conversely, inept strategies and faulty decisions will likely lead to monetary losses. Being extremely choosy and calculative in this context can actually help you reap great dividends. Always remember, investing in share market comes with a considerable amount of risk, but can also be extremely profitable. Before putting down any money, it’s recommended that you thoroughly check which stocks are listed on the exchange, before selecting the best 10 or 15 avenues for investment. According to the famous stock market magnate Warren Buffet, we should learn to say ‘no’ to most of the available choices.

With regards to trading in the equity market, it’s crucial to align yourself with those company about whom you have some knowledge. In the same vein, it’s a good idea to avoid those companies about whom you lack knowledge, especially with regards to their business model, working, products and services, and revenue generation. For example, if you’re fairly unaware of how the electronics industry works, don’t consider investing in companies that deal with such products.

Before you make any decisions, it’s important to carefully look over all the information available about the company whose stocks you’re hoping to purchase. Some important points to consider include product quality, market demand, and the company’s future potential.

To help you get a better understanding of where you should put your money, here’s a look at 4 types of companies that you should avoid at all costs:

Low Liquid Companies

Continuously falling prices are generally a bad indicator and can result in an investor not being able to sell the stocks due to unavailability of buyers. Such organizations are referred to as low-liquidity companies and investing in such companies is not a sound option. Experts suggest that the daily trading volume of the company should be more than 10 lakhs to be considered for stock market investments. The higher the volume, the better the option.

High Debt Companies

Some companies are knee deep in debt, and one should avoid investing in such entities. While high debt isn’t necessarily bad, it is detrimental in the context of investing in the equity market. It’s recommended that you should research the debt to equity ratio of the company before making any investments. If the ratio is more than 1, then it’s better to steer clear of that option.

Falling Knife Category Companies

Downward spiraling stock prices are a bad indicator and investing in such companies will only result in losses. Bad performance in the share market points towards the fact that something is wrong with that entity. There could be some underlying problems that are causing a significant fall. Investing in such organizations is similar to catching a falling knife. Instead, look for other entities on the stock market, you’re sure to find a far more lucrative option.

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Low Visibility Companies

You’ll find many companies whose information will not be readily available online. This is generally true for SMEs and micro-cap organizations. It’ll be an arduous task to research such low-visibility entities and will result in wastage of precious time. Additionally, the information obtained needs to be cross-verified with at least one other source to determine its authenticity.  There are many companies who don’t divulge their information on the internet. The best option, in this case, is avoiding such companies.

Bonus Tip: Avoid Investing in Penny Stocks

There are high chances that such stocks will soon become bankrupt, and this makes them extremely risky. Plus, penny stocks are also susceptible to a wide array of scams. By purchasing a high volume of such stocks, one can easily manipulate the price. This makes it easy to inflate the share cost. It’s recommended that beginners avoid investing in such schemes.

Conculsion

Investing in the equity market can be very profitable if done correctly. The above -mentioned suggestions will be extremely useful to you as an investor and will assist you in making the right selection. Make sure to tread carefully and select the best possible option to make the most of your money.

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