Be Weary of Investing In One Stock Company!

For every success story of an IPO or growth stock that brings average investors tens of thousands of dollars from buying a round lot of a stock, there are many more stock companies that result in the investor losing most or if not all of his or her investment.

Many of us want to kick ourselves for not investing in established companies like Microsoft or more recently, the number one search engine in the world, Google. While investing in these companies at the beginning of their stock existence would have been very profitable, you should not beat yourself up, provided that you were investing in stocks, bond and other financial instruments, during this time period, that matched your risk tolerance. Remember that many more stocks failed than goes that became powerhouse companies like Microsoft or Google.

It can be tempting to buy any stock that has been going up for the past two or three days; however, this does not mean that this trend will continue. If you decide to buy now, you might find that the stock has been overbought based on technical analysis, and you could be potentially putting your investment at risk, especially if the stock company is not a financially sound. In many cases, you would be better off sticking to your investment strategy found in your financial plan that you created alone or with the assistance of a financial advisor.

Sometimes individuals fall in love with a particular stock, even if the company’s earnings do not reflect that the company is financially healthy. Maybe you traded this company stock in the past and sold it for a profit, or you have enormous confidence in the current management team in place. If the stock starts to fall rapidly, you must decide whether to sell the stock or “stay the course.” You will probably be more inclined to keep the stock if the company has produced a positive balance sheet in the recent past.

It can be financially dangerous to invest your life savings in one stock, because you expect it to produce a return of 15% per year. It is not practical, and you will probably be disappointed in the end results. Also, do not get into the habit of buying stocks that have produced positive results over the past week. The stock could be headed to the downside, in the near future. On the other hand, if your stock starts to significantly slide, it may be time to sell. Yet, you might consider holding onto the stock if it is truly a long term investment.

***Disclaimer: This article should be construed as financial advice. It is important to speak to your financial planner, tax accountant, and or lawyer before starting any savings or investment program or strategy.