If you’re a long-time Wall Street denizen, you may pride yourself on spotting a bad or toxic stock and giving it the boot from your memory bank’s span even before your broker clears his throat to give it a casual mention. However, not every potential investor shares your good sense – and even you are prone to the odd (and costly) mistake. It’s all part of the game, but there certainly are a few telltale signs that you can make use of in order to identify a toxic stock before it has the chance to do damage to your financial health.
Does The CEO Sing A Song That Sounds Too Good To Be True?
A lot depends on the image that the company manages to paint for itself in the media as well as in the market. Is the CEO of the company spinning a particularly fancy yarn that seems to cause your financial instincts to revolt? Are they simply telling a tale that is too good to be true? If the line they are laying down concerning their stock and its potential for growth and development seems to be based on fantasy, it very likely is.
Very Few Stocks On The Market Are Ever Truly Unique
For example, does the CEO spin a picture of unparalleled growth with no bumps in the road? Does the company expect to operate in a vacuum, with no challenges from serious competitors who are attempting to corner the very same share of the market? There are very few goods and services on the international market that are truly unique, so if the stock you are considering cannot make this claim in truth, it’s very likely that the other claims they are making are also suspect.
Do The Backers Of The Stock Have A Creditable Track Record?
If the people who are backing the stock are using their track record of success to push a particular stock, it’s an excellent idea for you to do everything in your power to research and ascertain the truth of their claims before you sign on the dotted line. There are some companies, such as Fisher Investments, who make it a point to check the identification and track record of CEOs who offer stocks on the market. When you are considering buying a stock, it’s an excellent idea to follow Fisher and these other companies in emulating President Reagan’s famous dictum, “Trust, but verify.”
Does The CEO Of The Company Claim To Also Be An Investor?
Sometimes, in order to sweeten the deal for inexperienced investors, the CEO of a company will make a public claim that they, too, have invested in the stock. Depending on what they actually mean when they make this claim, it could be a cue for you to avoid this stock like the plague. For example, if what they mean when they claim to have invested in the stock is that they have picked up on stock options, as opposed to actual stock ownership, this is a clear deception that you should treat with the contempt that it deserves.
These are only a few of the many warning signs that you can pick up on in order to avoid buying a potentially toxic stock. It’s an excellent idea to seek out an experienced and trustworthy adviser who can help you steer clear of similar scams and deceptions in the market.
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