10 Reasons Not To Buy A Stock

Jun. 18, 2020 10:40 AM ETAAL, AAPL, AMZN, APRN, AYX, BABA, BBBY, CRM, CRWD, ETSY, GE, GME, GPRO, GPS, HTZ, HUBS, JWN, KSS, LUV, LYFT, M, MDB, MTCH, NFLX, PAYC, SHLDQ, SHOP, SPOT, SPY, TTD, TWLO, UAL, UBER, V, ZM, SHOP:CA78 Comments

Summary

  • About two-thirds of stocks underperform the market returns over time.
  • If you want to generate alpha, you have to accept that most stocks are better kept out of your portfolio.
  • Checklists can be very useful as a safeguard to avoid bad investments.
  • There will always be exceptions, but a rule-based approach can help you avoid investing in losers without your emotions getting in the way.
  • Let's review a list of 10 very good reasons to stay away from a stock.
  • Looking for a portfolio of ideas like this one? Members of App Economy Portfolio get exclusive access to our model portfolio. Get started today »

Great investing is not complicated.

Don't take it from me, but from legendary investors such as Warren Buffett, Philip Fisher, or Peter Lynch. They would tell you to simply invest in businesses for the long haul, based on track-record, fundamentals, and a consistent operating history.

If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes." - Warren Buffett.

Yet, investors keep on being seduced by certain stocks for all the wrong reasons. They feel like a stock is cheap because it is undervalued based on XYZ or because the share price has recently fallen and "cannot go much lower." With a small amount of due diligence, it would become apparent that the writing is on the wall and that they should stay away.

Most stocks can't keep up with a diversified index. As explained recently in my article covering The Art Of Not Selling, in a study covering more than two decades of stock performance, 64% of stocks underperformed the Russell 3000 during their lifetime.

In short, most companies are not worth investing in. And finding ways to avoid the bottom 64% of stocks is just as important as finding the top 36%.

Staying away from losers is a powerful way to generate alpha. But, to do so, you have to identify the factors that should give you pause before you buy.

That's why I want to cover today a series of 10 criteria that would make me instantly look away when I start reviewing the prospects of an investment.

Let's review 10 very good reasons not to buy.

Top 10 reasons not to buy a stock - Best Stocks Worst stocks

Source: App Economy Insights. In the chart: Blue Apron (APRN), GameStop (GME), Uber (UBER), Macy's (M), GoPro (GPRO), Spotify (SPOT

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

If you are looking for a portfolio of actionable ideas like this one, please consider joining the App Economy Portfolio. Start your free trial today!

The rise of the App Economy is disrupting many industries: retail, entertainment, financials, media, social platforms, healthcare, enterprise software, and more.

While keeping in mind some of the best recommendations from experienced gurus of Wall Street such as Warren Buffett, Peter Lynch, Burton Malkiel, or Philip Fisher, I am trying to beat the S&P 500 index by a significant margin.

Here are some of the trends reflected in the portfolio:

This article was written by

App Economy Insights profile picture
29.93K Followers
Unlock a portfolio built to benefit from the rise of the app economy
My name is Bertrand Seguin. I'm a former PwC consultant and veteran financial executive in the video game industry. I've spent 12 years at Bandai Namco Entertainment, leading the Financial Planning and Analysis team in the transition to Digital, Mobile, and Game-as-a-Service. I hold a Master of Science in Management and Finance.

My portfolio is built to disproportionately benefit from the rise of the app economy, the range of economic activity surrounding mobile applications. My investment plan and asset allocation are a result of secular trends I have identified (macro) and in which I take individual bets (micro). I invest with a very long time horizon (ideally 10+ years).

I am fortunate enough to have seen my strategy deliver outstanding results throughout the years.


Discipline and consistency win the game over time. Unfortunately, many investors violate their own model or strategy when their portfolio performance is temporarily disappointing. I would rather sell too late than too early, so I tend to never sell. I let my winners compound to a significant portion of my portfolio and let my losers become insignificant over time.



Disclaimer:

All App Economy Insights contributions to Seeking Alpha, or elsewhere on the web, are personal opinions only and do not constitute investment advice. All articles, blog posts, comments, emails, and chatroom contributions by App Economy Insights - even those including the word "recommendation" - should never be construed as official business recommendations or advice. In an effort to maintain full transparency, related positions will be disclosed at the end of each article to the maximum extent practicable. The premium service App Economy Portfolio is a research and opinion subscription. I am not registered as an investment adviser. The majority of trades are reported live, but this cannot be guaranteed due to technical constraints. Investors should always do their own due diligence and fact-check all research prior to making any investment decisions. Liability of all investment decisions reside with the individual investor.


Disclosure: I am/we are long AAPL AMZN AYX BABA CRM CRWD ETSY HUBS MDB MTCH NFLX PAYC SHOP TTD TWLO V. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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