Here's How to Avoid Losing a Ton of Money

Last week was a wild one. After briefly setting a new all-time intraday high in the Dow on May 10, the entire market went into a deep dive right through Wednesday's close. Thursday and Friday showed nice recoveries, but all three major indexes closed from 1.14% to 2.34% lower over the full 5-day trading. American Association of Individual Investors (AAII) bearish sentiment readings, published on Thursday morning, just prior to the late week bounce back, showed the lowest bullish number AAII figure since late October of 2020. Media reports like that always make it sound ominous, when individual investors are feeling scared and cautious. Instead, you should simply go back to the charts to see what happened after that previously bearish moment last fall. The one-year chart of the S&P 500 exchange-traded fund tells the true story. Last October marked a low point in the market as stocks had fallen sharply over the two to three weeks preceding the presidential election vote. Uncertainty regarding who would win, and what that might mean for stocks, triggered enormous selling just ahead of election-day. When mom and pop get very nervous, it's usually a great time to be buying. The SPY took off in November and never looked back. Bearish sentiment typically equals cheap equity prices. Based on that, we might be in for a bit more short-term upside. Right now, though, most stocks appear quite pricey. No group is more ridiculously expensive than companies, which have never turned profits at all. Vintage designer goods resellers Poshmark and The RealReal epitomize that in spades. POSH came public on Jan. 14, 2021 at $42 per share. It ran quickly to almost $105 as momentum players hopped on board. Buyers late to the party got royally screwed. After reporting yet another money-losing quarter last week POSH plunged to as low as $33.55 before closing on Friday at $36.60. POSH is expected to lose money for all of 2021 and stay in the red for 2022 as well. Interestingly Yahoo Finance simultaneously calls the stock both overvalued and undervalued at the same time, based on its 12-month goal price for POSH of $67.50. Industry rival REAL has been publicly traded since its Jun. 27, 2019 IPO at $20. It briefly touched $30 that year and carved out an all-time peak of $30.22 this February. Foolish traders who bought near those levels are hurting badly. REAL got as low as $11.54 last week before closing on Friday at $14.50. Yahoo Finance showed it the same absurd treatment as it did with POSH. On May 12, it labelled REAL as overvalued while calling for greater than a doubling by this time next year. The insanity on these money-losing firms is not limited to just one industry group. Carvana continues to ramp up sales while racking up huge net losses. What good are revenues if every sale results in negative profit margins? CVNA peaked north of $323 yet was down to under $226 last Wednesday. What is that company really worth? Nobody can tell you as it's likely very far from turning profitable. Fuel cell researcher Plug Power is another market darling in the eyes of traders. Over 82.5 million shares changed hands last Friday alone. PLUG's 52-week peak was $75.49. It was about $22 last Wednesday. Once again, there is no one who can put an accurate valuation on this perennial money loser. As with the other stocks mentioned Yahoo Finance gives the same inexplicable overvalued, but likely to go up a lot by next year take on PLUG's shares. Food deliver service DoorDash is yet another money pit that went briefly to over $256 before falling back by more than half. None of the five companies mentioned pay dividends. None expects to make money anytime soon. Bloomberg's Crappy Stock basket of unprofitable tech companies recently lost its luster recently. May 14, 2021 marked three straight weeks of serious declines. One of my absolute rules of investing is to never put money into any stock you can't put a fair value on. I challenge all readers to make logical target prices for any of the stocks discussed above. My guess is that I'll have no takers. If you don't have a clue what something is worth, why bother betting on where it's likely to go next?

Here's How to Avoid Losing a Ton of Money

Only the fools rush in to stocks they can't put a value on. Don't be one of them.

Columnist Conversation

More Insider Buying in American Woodmark (AMWD)

This Weekend on Real Money

Stocks Under $10

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.