Stocks to Avoid

In Chapter 9 of One Up on Wall Street, Lynch talks about stocks he’d avoid. There are six altogether.

1. “The Hottest Stock in the Hottest Industry”
2. “Beware the Next Something”
3. “Avoid Deworsifications”
4. “Beware the Whisper Stock”
5. “Beware the Middleman”
6. “Beware the Stock with the Exciting Name”

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Personally, I’ve done the “Whisper Stock” and regretted it. I’ve yet to be seduced by the “Diworseification”. I’m sure it’s just a matter of time. However, the one characteristic that I want to discuss today is avoiding the “Hottest Stock in the Hottest Industry”.

Get the Fire Extinguisher… It’s Hot
As I’m writing this it’s November 2022 and the stock market is under siege. Indexes have been grinding downwards all year. It’s hard to pinpoint just one hot stock that’s been struggling. The ones that come to mind are all in tech. I think of Tesla, Shopify, Square, Atlassian… the list is long. However, to make the point let’s pick the most controversial of them, Tesla.

It’s Not Just a Car
If you’re a Tesla fan then I apologize in advance. To the faithful, Tesla isn’t just a car, it’s mankind’s salvation. And it’s this religious-like quality that contributes to Tesla’s success. 

However, despite Tesla’s ability to defy the odds of success, its stock has cratered over the last year. It’s gone from $400 to $200/share. Is this the end of Tesla? Probably not, but it might be the end of anyone who invested in it a year ago at $400/share. 

Home Shopping What?
In his book, Lynch cites the example of the Home Shopping Network in the 1980’s. Like all hot stocks it’s just a matter of time before something comes along to sour people’s opinion of it. Back then Black Monday forced investors to start rethinking the Home Shopping Network. Today, inflation and interest rates are putting pressure on stocks like Tesla.

I could go on about hot stocks. The one that really sticks out isn’t even a stock, it’s Bitcoin. However, I’ll save that critique for another time. 

Speaking of another time, I’ll continue with the Stocks to Avoid discussion in the next post. I have a great “Beware the Next Something” story that is so shameful, sharing it might force me to start taking antidepressants.