Just because it looks good in the catalog, doesn’t mean it’s good. There are some things that can seem like it’s a great value at first, but when you look closer, you’ll see that most of these stocks are way overpriced.
Diversifying your portfolio can be a good place to start. Diversifying your portfolio can just as easily get you in trouble as it can help you stay safe. Before you dive into researching what stocks to buy, think about whether or not the stock you’re buying is overpriced.
Overpriced stocks, in my opinion, are ones that are way too expensive despite being a great bargain. If youre looking to buy a new stock that is too expensive without a plan, then you might be better off going with a stock that is cheaper. There are two primary reasons why a company should be overpriced. The first is that it may have the wrong idea about the value of its stock.
If youre buying a stock that is too expensive, you may think that a company’s financials are so bad that they are losing money. This is the sort of idea that can easily lead you astray. For example, the company Blue Valley is a major bread bowl company. Their stock is so ridiculously high that it seems insane to me. I would rather buy Blue Valley’s stock and put it in a savings account for a while.
At any point in time, Blue Valley has a chance of a lot of value. In fact, the company has an almost 100% chance of being worth more than $1 billion in the future. So, if the stock is so cheap, you might buy it just to put it in your savings account. But it is very important that you look at the financials carefully. They are not made of fairy dust.
A stock is a promise to pay for a good or service at a certain point. Blue Valley is promising to pay for their services at a certain point in time (which they plan on being able to do for quite some time). Their financials are very solid, and if you buy it just for the promise that it’ll pay for itself, then you are not doing your due diligence properly.
You need to look at the financials and not just the financials. Your due diligence should involve looking at the company’s history, company values, and the financials. If the company has made multiple promises to pay, they are taking on too much risk. If the company has the lowest value than you can find, they shouldn’t be buying your stock.
We have written an article on how to do due diligence that might be of interest to you.
In a recent blog post on the “Top 5 Reasons You Should Sell Your Stock” we discussed how to do due diligence on an investment in the stock market. In our opinion, you don’t need to do any of that. Just look at the financials and the company’s history. For most companies, you should look at the company’s history and financials. If the company has made multiple promises to pay, they are taking on too much risk.
If the companys history looks solid, then it has a good chance of keeping its promises. A company with a history of promising to pay its suppliers for certain service will be in a better position to pay its suppliers than one with a history of promising to pay for nothing.