You don’t just invest in stocks because everybody is investing in them. No! There are rules to observe, standards to follow, and, most importantly, for you as a newcomer, there are certain stocks you should stay away from at this stage if you don’t want to get your fingers burnt.
It’s not necessarily because these stocks are bad, but because you need time to become familiar with how the market works. Starting with them too early can mess up your entire stock investing experience.
Below are some of the stocks you should avoid for now:
1. Low-Priced Stocks (Penny Stocks):
These are popularly called penny stocks. They are usually very cheap, often priced between ₦1 and ₦5. We advise new investors to avoid them because they are highly volatile, speculative, and frequently manipulated by fraudsters.
The prices of penny stocks can rise and fall sharply within short periods, which can be very unsettling for a beginner. I honestly don’t think anyone should develop high blood pressure in the name of investing in stocks.
More importantly, the likelihood of low-priced stocks performing poorly over time is quite high, even though there is also a chance they may grow. It’s often a 60/40 situation, depending on the company and industry. To stay on the safer side, it’s best to avoid penny stocks at the early stage of your investing journey.
2. Stocks of Unknown Companies:
You should invest in companies you know. That simply makes investment sense. This is your money, your hard-earned money, and you should only entrust it to companies you understand and trust.
Avoid buying shares of companies you have never heard of or cannot find reliable information about. As I always say: If you cannot explain what a company does or how it makes money, don’t buy its shares. It’s that simple.
Before investing, you should at least know:
- What the company does
- How it generates revenue
- Its industry and competitors
- Whether it is profitable
If you don’t know these, it’s better to stay away.
3. Speculative Stocks:
Be careful when you see posts or videos saying: “These stocks will go up now, buy them quickly!” That is speculation.
This is basic demand and supply: the higher the demand, the higher the price. Even if a stock is currently selling at ₦15, once it is hyped and thousands of people rush to buy it, the price will suddenly and artificially shoot up.
This may benefit short-term traders who quickly sell to cash out, but it is usually bad for long-term investors. What goes up artificially will almost always come down, often very hard.
So the next time someone pressures you to quickly buy a stock because it will “soon go up,” think twice.
4. Highly Volatile Stocks:
These are stocks that react sharply to news, hype, political events, social media trends, or economic developments—whether positive or negative.
Such stocks can rise or fall significantly within a short time. As a new investor (and not a trader), you likely do not have the skills to properly time market entry and exit. Because of this, you can lose money very quickly.
To protect yourself, it’s better to avoid highly volatile stocks when you are just starting out.
5. Stocks of Companies Without a Proven Track Record:
If you are new to stock investing, like I clearly stated in my article on STEPS-BY-STEPS ON HOW TO INVEST IN STOCKS, stick to strong, popular, and well-established companies. Avoid newly listed companies with little or no profit history.
For your own good, always check at least 2–4 years of financial statements before investing in any company’s stock. This helps you understand the company’s performance, stability, and growth pattern.
I say this clearly so that you don’t end up losing money and blaming stock investing itself.
6. Foreign Stocks You Don’t Understand
You may hear people say, “Don’t buy Nigerian stocks, buy American stocks.” Be careful with that advice.
If you are new to stock investing, start with companies that operate in your own country. You know them. You likely use their products or services. You understand their market, environment, and management better.
If you do not understand a foreign company’s business model, market conditions, currency risks, or regulatory environment, don’t buy its stock just because it is trending globally. Foreign stocks come with their own risks.
Stock investing is an excellent long-term wealth-building tool, if done the right way. As a beginner, your priority should be to avoid obvious landmines that can wipe out your capital or discourage you early.
The stock types discussed above are some of the major ones you should avoid for your own good. Be patient, invest wisely, and focus on long-term growth.