Stocks We Avoid

Sep 17, 2012 by

stock certificate with hash markSorry, but I need to start by repeating from my prior post, “Stocks We Own”: I don’t make investing recommendations. I’m only explaining what we do and why. You’ve got to make your own investing decisions based on the specifics of your situation and your risk tolerance. But first, get educated, if you intend to consider stocks or bonds or anything more esoteric (pork bellies, for example).

That said, here’s a probably incomplete accounting of the sorts of equity investments we avoid.

U.S. Financials

As I described in detail in my Bargaineering guest post, “Why I’m Wary of Stocks,” Wall Street has run amok, in my view, and the financial industry is the asylum’s most dangerous inmate. Because of what I perceived as outsized risk, I ended any investments in financial industry companies long before the 2008 meltdown, and I wouldn’t touch any for the foreseeable future.


The question is when, not if, China’s economy and stocks take a huge tumble, in my opinion. And Chinese companies don’t exactly adhere to GAAP accounting rules; I don’t trust a single number coming out of China.


I think there’s a heck of a lot of ugliness yet to play out in Europe; way too risky for my taste. However, if you’re a young person with 30+ years to retirement, I can see an argument for gradually investing in a low cost, broad-based European index fund. I wouldn’t be in any hurry though.

Non-Dividend Payers

As I wrote in “Stocks We Own,” I like income, first and foremost. Counting solely on capital gains for investment return to support a secure retirement feels too speculative to me. Sure, people make huge money on capital gains. That means they’ve taken a huge risk. I surely take into account the prospect for share price appreciation or depreciation when I’m evaluating an investment, but mainly I’m looking for a relatively low risk that the share price won’t collapse. A capital gain is a bonus.

Companies in the Paper Shuffling Business

Most of these sorts of companies and mutual funds are financials, which I’ve already covered above. But there are also the Enrons of the business world. I like businesses and industries that produce something of tangible value, probably just because it’s easier for me to understand their business model.

Companies in the Toxic Products Business

Though I of course recognize the long-time cash generating capability of many of these businesses, certain companies I just cannot stomach owning. Examples: Coca Cola, McDonalds, Monsanto, Lockheed Martin, Cargill Tyson Foods. Investors in these companies over many years have been well rewarded, I know, but there are lots of great companies on the planet in businesses I feel good—or at least neutral—about owning. I may well own a mutual fund that owns companies in this category, but I try not to think too much about that unless the company is one of the fund’s top ten holdings.

Expensive Funds

I instantly veto investing in any fund with an expense ratio over 1%. And it would take a lot to get me to invest in a fund with an expense ratio over 0.7%.

How About You?

Do you avoid any particular sorts of investments?

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