In the investment world there is no such thing as a guaranteed right decision. Even good investments become unsuccessful due to external factors, negative news, economic events and mistakes. Fortunately, there are some signals by which you can identify potentially unprofitable investments, avoid losses and understand in advance that you are making a bad investment.
1. The financial advisor insists on the acquisition of certain assets
No, just the fact that your investment advisor advises a specific solution is not a sign of bad investment. Caution is important when the premium of a financial adviser for a month depends on how much money you invest in the brokerage company for which he works. This means that he can put his interests above the interest of the client..
Since the brokerage company receives commissions from transactions you have completed and probably pays bonuses to its employees for the results, the human nature of the employee may prompt him to recommend more expensive investments, rather than more promising ones. Therefore, always directly ask the investment adviser what specific rewards and from whom he will receive for what you will invest according to his advice.
2. To purchase securities you need a loan
Some sophisticated investors use leverage or loans to improve the effectiveness of their investments. But such feints are best left to high risk traders..
If you cannot afford to buy assets directly and intend to borrow funds for their acquisition, most likely, you should refuse them. In addition to high risk, you will receive high interest on the loan – just because you decide to buy securities.
3. Everyone buys these assets
Following the herd when it comes to investments is a bad decision. Panic buying sometimes provokes insanity, similar to a fascination with Dutch tulips in the early 1600s or a fascination with bitcoin in 2017. But do not forget that with the growth of such bubbles, “hot” stocks and markets often fail. When the hype subsides, such assets return to their true value. It is at this point that investors realize that they have made bad investments.
This does not mean that “hot” stocks are always doomed to failure. Just instead of buying securities based on mass preferences, always conduct your own research with an assessment of risks and prospects. It is possible that market greatly overestimates these assets, thereby artificially increasing their price.
4. You must invest now
Be careful if the situation forces you to buy investments “here and now” so as not to miss this opportunity in the future. Good investments based on fundamental indicators are likely to remain a good choice after a week, a month or even a year. If someone advises you to immediately part with money, there is a high risk of running into fraud or another “bubble”.
No need to get excited. Adhere to long-term, fundamentally sound decisions made with a cold calculation
5. Securities are getting much cheaper
An impressive reduction in value alone does not mean that a particular asset will not stop getting cheaper. Some investment experts play catching a knife when they try to buy cheaper stocks at the bottom of the price chart, but this is a very risky job.
Stocks that are falling sharply often remain low for a long time. This means that you will still have the opportunity to calmly assess their future before the cost starts to rise..
6. These stocks are bought by Warren Buffett
The list of bad investments will not do without this item. Just because someone, even as authoritative as Warren Buffett, is buying an asset, you should not do the same. Yes, Buffett is a global expert, an example, the Omaha Oracle. But each investor has his own time horizons, needs and reasons for buying shares. And your personal conditions can radically differ from Buffett ones. In addition, he selects only those options for investments that he is deeply versed in. Therefore, you should only make informed decisions for which you are ready to bear responsibility.
7. Stock performance exceeds company performance
Do not rush to the choice if the stock price of the company is growing rapidly, and the net profit of the company remains at the same level or decreases. By default, stock growth should be driven by higher earnings. Assets that are knocked out of this rule are revalued, which means they are risky.
Make sure that you have studied the ratio of the company’s capitalization to its annual net profit and try to find shares that have been fairly priced or underestimated.
8. You received a hint
From promotions that have promoters singing praising odes, you should usually stay away. This could be a sign of fraud. It often occurs after natural disasters like hurricanes. For example, there are reports that certain stocks that are directly related to recent events will grow.
Once again: do your own research and investigation to work with stocks whose reliability is confirmed personally by you or by analysts you trust.
9. The investment looks too good
Experienced sellers know what their buyer wants to hear. This is true for any thing, not just for investment. If the sentence you heard is too attractive to be true, then chances are that it is. Any suggestions with epithet-enhancers like “huge growth potential without risk” or “incredible benefits” are direct signals warning of possible investment fraud and that you are making bad investments.
10. The performance of the company’s stock is out of the general trend
In most cases, stocks are traded in accordance with general market sentiment, namely their industry group. The situation when a particular company lags behind its group often speaks of underestimation.
Nevertheless, this may be a sign that the company is “losing on its own field.” If you are looking for reliable investment options with fundamental foundations, pay attention to industry leaders who match the big picture..
11. You have other investment goals
Before investing in anything, you should evaluate your own investment goals. Do you want to maximize your capital? Or do you need dividend income? Do you want to save up for an apartment for five years or do you plan to provide yourself with a decent old age?
Different investments provide for different personal goals, the level of risk and income. Inconsistency of investments with your personal benchmarks and plans is a sign saying that, most likely, you need to look for a more suitable investment option.
12. Investments do not match your risk tolerance
Your risk appetite is, in fact, an expression of your willingness to experience volatility. Are you ready to hold stocks whose value jumps up and down daily? Or it will be too much stress for you.?
No matter how good the investments seem to be when calculating on paper, you need to pay attention to risk. If it does not correspond to your tolerance, do not get extra nerves for yourself. This option will say that you personally make a bad investment.
13. Assets worked great in the past
Investments that brought you income earlier do not guarantee future profits. Brokers, exchanges, and regulatory authorities always warn that past investment performance is not an indicator of future performance..
If you have chosen some stocks simply because they have generated income in the past, you should re-evaluate the situation. Explore the asset with a cold head, taking into account market and industry trends and changes. Make sure that you invest on the basis of your own calculation of the future potential security, and not by inertia.
14. You do not understand what you invest in
If investing in a particular company is so complex that you cannot explain what you are investing in in plain Russian, you should not choose these stocks. In the end, who else should thoroughly understand where you are investing money, besides you? None.
Whether it’s a hundred times a promising area or a revolutionary product, if you don’t know what the essence of the company’s work is, you should stay away. Take the time to study the issue or pay attention to a host of other companies and market sectors that you understand.
Reader: How to choose the right stock for investment
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Is there a way to mitigate the risks and turn a bad investment into a successful one if one or more of these 14 signs are present?