“If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the car pool or on the commuter train- and succumbing to the social pressure, often buys.”
Hot Stocks: These are stocks that everyone is talking about, they’re supposed to revolutionize the way we live our lives, but because they’re based on hope and are supported by thin air, they fall just as quickly as they sprung up.
Beware the next something: The next Intel. The next McDonald’s. Beware of these stocks. The next something almost never is as good as what it is being compared to.
Avoid ‘Diworseifications’: A company ‘diworseifies’ when it decides to blow money on foolish acquisitions instead of buying back shares or raising dividends.
The whisper stock: These are small companies that your friend tells you about under his breath. They’re always longshots. The companies that sell Papaya juice derivative as a cure for slipped disc pain; jungle remedies in general; high-tech stuff; and energy breakthroughs that violate the laws of physics.
The middleman: The company that sells 25 to 50 percent of its products to a single customer. Investing in these companies is a dangerous move. If a company gets a third of its business from selling to one huge company, the loss of their business will prove to be detrimental.
The stock with the exciting name: As often as a dull name in a good company keeps early buyers away, a flashy name in a mediocre company attracts investors and gives them a false sense of security. As long as it has “advanced,” “leading,” “micro,” or something with an x in it, people will fall in love with it.
References: One Up On Wall Street by Peter Lynch. Click here to buy this book on Amazon or use the link below.
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