By When it comes to investing in the stock market, the risks are similar to the risks taken by the initial gold miners during the California gold rush of the 1840s. Just imagine back then when gold was aplenty – you could literally stoop into a creek with a pan and find nuggets of gold. Or, you could choose to dig a hole and find a vein from a mine, or an old waterfall with a bunch of gold at the bottom. As stories of these miners striking it rich spread across the country, there was truly a historic gold rush that occurred. And, as more people flocked to find their fortunes in California, there were plenty of people who also showed up selling picks, shovels, pans and any other items necessary for living life as a miner.
What’s not talked about as much is that, while history does tell stories of the initial rush, what many people don’t hear about are the many folks who moved cross country for a get-rich-quick-opportunity without knowing a single thing about mining, or how to spot and identify gold. In the excitement that transpired, no one thought to take the time to ask themselves if they really knew what they were doing. While I’m sure you’re intrigued by what happened to these miners, I’ll leave that to Wikipedia.
We’re here today to talk about stocks that are more like fools gold than real, profitable companies with actual earnings. They may have a lot of flash, a large market of opportunity, revenue growth (read: building expenses), but the majority of them won’t survive an economic downturn (read: recession), should one occur.
With April Fools’ Day tomorrow, my challenge for you is this: before you put your hard-earned money in a stock or bond, ask yourself: is this really gold, or is it fool’s gold? If you have questions about a company that someone told you is “hot,” and you can buy 10,000 shares of said hot company for less than $1,000, or it’s somehow tied to crypto, please, give me a call first. Now, I can certainly change my mind at any time, but my initial thought is that those companies probably don’t fit within your portfolio unless you’re looking to speculate. If so, that’s fine – but buyer beware.
If you own any companies that you’re starting to question, feel free to reach out to us. There’s always a chance that we may not have heard of them! If that’s the case, that’s a solid sign that it’s a questionable stock. That said, there also may be some solid up-and-comers out there. Some of the largest companies in today’s market did start at a share price of under $100, and we’re happy to help you hunt for hidden gems.
Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.