Rubbish stocks are low quality stocks in the stock market. They are also called crappy stocks, inferior stocks and lousy stocks. Many people would think that people who invest in the stock market would stay as far away as possible from rubbish stocks but information from brokers show the opposite to be true – that many stock investors actually own a lot of rubbish stocks.
I am sure you are wondering why on earth do people want to own rubbish socks? Don’t they know these rubbish stocks are high risk investments? Some really don’t but the majority of investors do know these stocks are high risk investments. Yet they will buy them because they are cheap and have the potential for extraordinary returns (if) they go up!
15 Characteristics of Rubbish Stocks
1. Rubbish stocks are loss-making companies and mostly companies in a bad shape.
2. They are usually cheap penny stocks; stocks that trade below RM1.00 in the stock market. Initially, they could be trading higher than RM1.00, but because of the high losses they incurred in the business, many investors sold and the stock price dropped below RM1.00.
3. These stocks are companies having low NTA (Net Tangible Assets) per share. And the remaining assets they still own are usually poor quality assets that have little value and do not generate much income.
4. These stocks usually have high gearing and high debts. They are at high risk to close shop because of the high chance they could not service the mountain of debts they have piled up with the banks.
5. When the stock market goes up, rubbish stocks stay flat or goes down. Their price movements depends solely on the stock operators!
6. The management team of these stocks get rewarded with generous director fees, allowances and bonuses irrespective of the mounting losses of the company.
7. These stocks does not pay any dividends irrespective of profit/(loss) of the company.
8. Rubbish stocks are usually the target of stock market syndicates who love holding and playing these type of stocks.
9. Rubbish stocks are stocks with juicy stories and the focus of incredible stock market rumours. They are usually created by the stock syndicates to entice retail investors to purchase the stocks from them at a higher price later.
10. They are usually speculative stocks; they can go very high up within a short time frame. It is this factor which makes these stocks the darlings of retail investors wanting to get rich quick. Unfortunately, more people become poorer after dabbling in such stocks.
11. Rubbish stocks are usually the last stocks to move in a stock market rally. After the good stocks have moved and become expensive, stock operators will start moving their cash into these stocks for quick capital gains.
12. Rubbish stocks are stocks that are always asking investors for money. Every few years there is a rights issue or placing out shares (private placements) to new investors with no corresponding increasing in earnings.
13. Rubbish stocks are run by rubbish management. They prefer playing their company stocks for profit rather than running the company for a profit. They also engage in questionable tactics like selling their assets to the company at high valuations and approving stock options to themselves.
14. Rubbish stocks are stocks heavily promoted in stock market forums, stock market magazines, newspapers and even Facebook stock groups. Usually a sexy angle or a good story is attached to the stock to make it enticing enough to buy.
15. Rubbish stocks are stocks with poor earnings but trading at high valuations. A measure to gauge the stock price is to look at the PE (Price to Earnings) Ratio of the stock. Usually these stocks have high PE Ratio in excess of 50 or more.
Conclusion
So now you know rubbish stocks. I could go on ...but just knowing these 15 characteristics of rubbish stocks should be enough for someone to avoid them. They are guaranteed to make you poorer in the long-term. Invest in fundamentally good stocks that can still be found in abundance in the stock market.
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