Investing in the Name of a Company Can Hurt
Familiarity investing (investing in the name of a company) can lead to large losses and missed opportunities.
Well-known companies can’t return 100%. Well-known companies are safe to invest in. Both statements are myths. And both can be harmful.
Many investors know the names of companies. Few know what their revenues and profit margins are. Most investors do not know what these companies’ stocks are worth. And this is where the losses begin. Or an investor might wait for a year to earn a 6% to 10% return.
Well-known companies’ stock prices fluctuate like others. Professional and retail investors will run from sector to sector. They rush into oil stocks and overvalue them by 150%. Then they run to certain tech stocks and overvalue them by 300%. Then it’s on to the next sector.
Here is where many investors get burned. Those once well-known safe stocks are now a trap. Some investors see them increasing in price, and they buy them. They are unaware that the stock they just purchased for $120 is worth $60.
They are stunned when the stock drops to $80 in a month and continues to fall. Then the stock will recover a few points and drop lower. But the investors have a false comfort in knowing that it’s a well-known company. The stock will recover… so they think.
The reality is the stock may never recover. It has never been worth $120. And still isn’t. Or the stock may grow into a $120 stock in 3 years. By then, investors have sold for a loss.
I welcome this kind of investing. Not because I want to see people lose money. But it often sends stocks far below their real value. Allowing investors who do their homework a chance for a 50% or 100% or higher return. All while limiting their risk.
Well-known companies should not be assumed to be safe investments. They are only safe if we do our homework. We need to know the real price of the stock. Not the stock market price. Only the real price of the stock will tell us when to buy and sell.
Enjoy your day.
I have published two new stock reports available for purchase now. Check them out here.
And to get your free stock report on Amazon.com, Inc., sign up for my newsletter below.
