Boy, do I have some bad ideas for you…
Why should you care? Because they’ll help you make some great decisions about what to avoid in your trading and investing.
The vast majority of individual investors and traders are more concerned about doing something wrong than doing something right—finding the wrong stock is more important than finding the right one. Given the need for most everyone to preserve capital, I agree.
Here are my best “worst ideas” for 2016. Five sectors, five stocks; one per sector.
These aren’t necessarily the worst companies. In fact, since most of them are well managed and arguably the best in their sector, they’ve attracted buyers.
In short, they’re value traps.
Yes, there is value, and the companies will figure it out, but it will take a long time. During that time, your investment stands a pretty good chance of losing quite a lot of value.
Let’s take a look at the best of the worst…
Unless you’re recovering from something that has kept you indoors (how long can a holiday party hangover last?), the weather has been beyond mild and sales on clothing are beyond ridiculous.
Stay away from retailers that need clothing sales to make their numbers, and stay away from clothing companies that sell more wool than cotton.
Worst stock? Macy’s (M)
Some blow-dried blowhards (no, I’m not talking politics) on CNBC look at bottoms and say, “Time to buy, there’s value there.”
Regardless of what you believe, most everyone else (a.) believes in global warming, including Exxon (XOM), and (b.) thinks oil and gas will continue to crowd out coal.
News flash: Coal hasn’t put in a bottom—not even close.
Worst stock? Peabody (BTU).
When the aforementioned blowhards appear and say this sector is cheap, I want to throw something at the TV. Instead, I turn on cartoons for a reality check.
With oil prices below $40 and likely to stay below $50 in 2016, nobody is spending capital on deepwater or harsh environment exploration and exploratory drilling. Restructurings and bankruptcies in this sector will be among the key headlines in 2016.
Worst stock? SeaDrill (SDRL).
Big-Cap Tech Hardware
Not tech, hardware tech. And not semis.
I mean companies still making something you put in a box.
Google (GOOG), Facebook (FB), Netflix (NFLX) and Amazon (AMZN) are described as tech outfits, but they’re not. They are consumer marketing companies, and Apple (AAPL) is the exception that proves the rule.
Worst stock? Hewlett Packard (HPQ).
There is an on-again, off-again love affair with smaller outfits trying to make inroads on these market dominators. To use my favorite technical language, it ain’t gonna happen.
Worst stock? Twitter (TWTR).
As mentioned, these potential losers may be great companies, just not the stocks you want to be in as you construct your portfolio for 2016.
A happy and prosperous new year to you.
This post originally appeared in mainstreetinvestor.com.