Life is all about risk.
From the second you rise in the morning to the moment you crawl safely back into bed at night, you are taking risks of some sort.
All day we make decisions about what risks we are willing to accept and which we are not.
Do we cross at the light in the crosswalk, or do we dash across a busy avenue avoiding traffic? Should we tell our boss what we really think, or just nod and move along?
What risks will we take and which will we avoid? Life is just a never-ending string of choices about risk and reward.
The big choices all have risk and reward trade-offs, don’t they?
If we follow the designated path of getting a job and working in a “normal” career, we should avoid the risk of ruin. But if we follow our dreams and become a writer, a singer, a ballplayer, the rewards could be tremendous.
However, dream chasing potentially has a very high cost and takes an enormous amount of dedication and hard work with the odds against you.
As Damon Runyan once noted “Furthermore, in Dream Street are always many hand-bookies and horseplayers, who sit on the church steps on the cool side of Dream Street in the summer and dream about big killings on the races, and there are also nearly always many fight managers, and sometimes fighters, hanging out in front of the restaurants, picking their teeth and dreaming about winning championships of the world, although up to this time no champion of the world has yet come out of Dream Street.”
If you dash across I-Drive against the lights here in Orlando, the local traffic stats tell me you have a pretty good chance of getting run over by a tourist looking at their traffic app for directions or arguing with their spouse about where to go to dinner.
Crossing at a crosswalk reduces those odds of a high splat factor. Meeting a woman at a church and finding out you have common interests and aspirations, then dating for a year and getting married, has much higher odds of success than choosing your spouse at the bar behind the crap tables at Caesars in Vegas at 3 am and getting married at the Elvis Love Chapel as the sun comes up.
Yet without risk, nothing great is ever achieved.
If Bill Gates doesn’t decide to bet on himself and drop out of Harvard, there is no Microsoft (MSFT). If Warren Buffett goes back to Omaha and becomes a stockbroker, there is no Berkshire Hathaway (BRK). If the pilgrims and pioneers do not take incredible risks to find a better world, there is no United States. Great dreams can require great risks.
But there are smart risks in life, like betting on yourself when you know you have an edge. Having a child in an uncertain world is also a risk, but trust me when I tell you that it can pay off handsomely. And then there are dumb risks in life as well, like the sunrise wedding in Vegas with the wedding rings fashioned for a tequila label.
So all of life involves decisions about risk versus reward.
Call These Risky Stocks What You May – I Call Them Zombies
When we get to the stock market, everything is about risk versus reward, isn’t it?
The problem is that no one ever thinks about the risks.
Potential rewards, hot tips, and sexy stories are the flavor of the day and what keeps the Wall Street Machine fed its daily bread.
No one thinks about the possibility, or probability, that a big trade will finally send us too far over the top.
I run a screen every week to uncover stocks I consider Zombie stocks. These companies have high debt loads and trouble generating enough cash to pay their interest, not to mention grow the company.
I ran some rough and dirty tests on these stocks. Turns out, when you buy one of these stocks, you have a 25% chance of losing more than 50% over the next year and an almost 60% chance of taking some sort of a loss over the past five years. So it’s tough to make money when the probabilities are against you. But that’s okay because we would never own those stocks, would we? Or would we?
Right now, Tesla (TSLA), Mattel (MAT), RingCentral (RNG), and FireEye (FEYE) all make the list. So do dozens of small clinical-stage biotech companies and US oil and gas exploration companies. In the past few years, Pandora (P), Spotify (SPOT), SunPower (SPWR), Apache (APA), Lending Club (LC), and many other popular well know companies have been on the list with less than satisfying results for their investors.