In investing, we have to always be willing to take a few risks. The higher the risk, the higher the possible reward, but high-risk investing has consequences, and you have to be very careful when you consider putting money to work in risky stocks.
With the high reward potential comes the added risk for big sell offs, so you have to pay special attention to the company’s underlying business when you seek high risk stocks to add to your portfolio.
There are plenty of investors that have made fortunes cherry-picking weak stocks just prior to their bounce, but more often than not this is not the case, and most investors learn the hard way just how difficult it can be to time an entry into risky stocks in hopes of a quick rise in value.
Last month we took a look at five risky stocks that were worth gambling on, and now we want to take the opposite approach and highlight five risky stocks that are simply not worth the gamble… at least not at this time.
Risk can be measured in terms of beta, as a beta greater than 1 indicates the security is more volatile than the overall market, but even stocks that are less volatile than the overall market can still be risky, so a high beta should not be the only criteria when screening for risky stocks. If a sector’s underlying fundamentals are weakening stocks within that sector become risky. Risk can come from a variety of directions, including lawsuits, overall economic conditions, or company scandals.
Risk can be a good thing, but the following five stocks appear risky at the current time, and are simply not worth the gamble.