Aggressive investors looking at high-risk stocks to invest in should only allocate a small part of their portfolios to those investments
There are always investment-related worries to occupy the minds of investors—but focusing on high-risk stocks to invest in just makes it worse.
It’s only natural to worry about your investments, whether that’s during the kind of bull market we saw in 2021, or the COVID downturn of 2020 or the current volatile market. But being able to overcome that worry is one of the most important traits a successful investor can have. It’s especially important when investors are looking for high-risk stocks to invest in.
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Anxiety recedes with investment quality, diversification and balance
You’ll find that many of your worries centre on things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would. That also applies when you’re looking for the best high-risk stocks to invest in.
You get a much better return on time spent if you devote less of it to worrying about high-risk stocks to invest in, and more of it to an investing strategy. Create a strategy that is built upon analyzing the quality and diversification of your investments, and the structure and balance of your portfolio.
There’s another advantage as well. A calm investor is much less likely to react in haste and make sudden decisions that could prove to be damaging in the long run.
Pink sheet stocks are the Wild West of U.S.-based stocks—and only for investors looking for high-risk stocks to invest in … with money they can afford to lose
Companies that trade on the U.S. over-the-counter market are said to trade as “pink sheet stocks,” a holdover from the days when the quotes for these stocks were printed on pink paper.
Today, OTC Markets Group (formerly Pink OTC Markets Inc.), a private company, is the main provider of pricing and financial information for the over-the-counter (OTC) securities markets.
OTC Markets Group operates a centralized information network that includes services for market makers, issuers, brokers and OTC investors. This information aims to make OTC trading more efficient and improve access to capital for OTC issuers.
Companies that trade “pink sheets stocks” usually don’t have sufficient market caps, or enough shareholders, to meet most stock exchanges’ minimum criteria.
Over-the-counter shares are often sporadically or inactively traded. That can make buying penny stocks and pink sheet stocks (and selling them) more difficult and expensive than shares of larger stock exchanges.
As well, over-the-counter stocks trade through “market makers,” or traders who maintain an orderly market in a particular stock by standing ready to buy or sell shares. The market maker’s job is to maintain a firm bid and ask price for their assigned securities. If a broker wants to buy a stock, but there are no offers to sell it, the market maker fills the order by selling shares from their own firm’s account. If a broker wants to sell, but no one wants to buy, the market maker buys the shares.
Over-the-counter stocks may at times seem to offer extraordinary opportunities, but this can be an expensive illusion. Most legitimate companies with substantial growth potential will want to leave the over-the-counter market as quickly as possible, and move to the major markets. This tilts the odds against you.
That’s why we’ve always stayed out of the over-the-counter market, and are likely to continue to stay out. There are just too many attractive buying opportunities in major markets where risk is lower and your chances of making money are much better.
Patience, consistency and skepticism are at the heart of a successful portfolio investing approach
If you ask investors who have a few decades of successful investing behind them, few if any will credit their portfolio investing success to one big idea. That’s especially true if the technique involves predicting the future, or trying to speculate on the price movements of volatile commodities like oil. Instead, most will talk about everyday qualities like patience, consistency and a healthy sense of skepticism—the kind of qualities that bring success in all aspects of life, not just investing.
These qualities help you apply our three-part formula for portfolio investing success: mainly invest in well-established, high-quality companies; spread your money out across most if not all of the five main economic sectors; and downplay or stay out of companies that are in the broker/media limelight. These are our guiding principles when we manage the portfolios of Successful Investor Wealth Management clients.
Investing tip for high-risk stocks to invest in: Spread your money out
No matter what kind of stocks you invest in, you should take care to spread your money out across the five main economic sectors: Finance, Utilities, Consumer, Resources & Commodities, and Manufacturing & Industry.
By diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion.
Bonus tip: Avoid high-risk Canadian cannabis “pot of gold” stocks
Even with its continuing challenges, the marijuana industry now has a number of established producers, including Canopy Growth, but investors still need to look out for high-risk “pot-of-gold” penny stocks. These typically arise in new industries.
Stock promotion is a take-the-money-and-run type of business. Most successful entrepreneurs value their reputations, and want to build a profitable, sustainable business that can pay off for investors. So they generally go into some other line of work, and stay out of stock promotion. Right now, cannabis stock investing is a risky area.
We advise staying out of stock promotions of Canadian marijuana stocks businesses or anything else. They attract the wrong kind of people.
These days, it’s faster and easier than ever to launch a stock promotion, thanks to the Internet. One recent “penny pot” investing stock scam almost seems like an MBA-style case study on how to launch one of these frauds online. To avoid being taken in, it pays to read more, and to think before you invest.
Have you been looking for high-risk stocks to invest in? Are you already investing in these stocks? Share your experience with us in the comments.
This article was originally published in 2017 and is regularly updated.
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