A look at some of the more lateral reasons to avoid certain companies.
There are countless reasons not to buy shares in companies.
Chief among them are the wrong numbers. If you can find any good reason to say no, then say no.
Slightly less quantifiable, but equally important (if not more so), is what my Foolish colleague Stephen Bland refers to as "smell"; the inexplicable bad feeling you sometimes get about a potential investment. Sometimes an investment just doesn't smell right.
There are many reasons for a company being a little malodorous. The involvement of any individuals from your blacklist of companies and people to avoid is reason enough. If you don't have such a checklist, I would suggest you start one. The Foolish discussion board: "A Fool And His Money…" is an excellent starting point in finding a few names to avoid.
Or you may simply not like what a company does. But I thought it might be interesting to take a look some of the less obvious reasons not to buy...
Bad grammar
Bad grammar on company websites and in official announcements to the market is nearly always a bad sign. One of my favourite examples occurred when a small cap I had the misfortune to have been invested in said: "(We..) note that their [sic]has been a large movement in the share price of the Company. The Board are not aware of any factors behind this movement."
The directors didn't go on to add "we is an high class outfit", but they may as well have done.
Three days later the company decided to de-list. Clearly, their was a good reason after all! And by the way, the Board is singular.
The misuse of apostrophes is also a bad sign (and a surprisingly common one, in both senses of the word!).
I try to avoid any company that gets any basic grammar wrong in its announcements. If it can't get that right, it's probably not all that it seems. Just be cause its bin threw the spell chequer don't make it write.
Silly naming
Silly nomenclature is another reason to avoid companies.
Anything obviously designed to curry popular favour should arouse a little healthy suspicion. This was well portrayed in a "pump and dump" scam operation on The Sopranos a few years ago when shares in the "Webistics" company were rather heavily promoted (warning: video link contains violent scenes).
Had you gone short an anything with dotcom or .com in the title this time 12 years ago, you'd have done very well. But you'd have been scared out of your wits and maybe lost all your cash first. It's a better idea simply to avoid companies with trendy names in my opinion.
More recently, anything with "African Gold" or "China" included in the name should have rung a few alarm bells. Please note by the way, I'm not saying every company with these terms included in its name is one to avoid, so no libel actions please!
I also don't like companies with characters like @ or too many seemingly senseless numbers in the name, or just plain pretentious ones.
Name-changing
Any company changing its name for no apparent reason also makes me a little suspicious. My Foolish colleague Chris Menon warned us to beware of companies changing their name for spurious reasons.
There can be very sound business reasons for a name change. And some name changes have proved to be highly successful. Chris cites Google (NASDAQ: GOOG.US) which was once known as "Backrub", and Pepsi Cola, formerly "Brad's Drink" as two good examples.
But if there's no good reason beyond the marketing consultant's fees, then run a mile.
Dodgy directorspeak
What directors say and what they really mean can be two different things altogether. A dose of healthy cynicism can help you realise that "we remain very excited about the prospects for..." really means "we continued to lose money" -- particularly if it's your capital on the line, not theirs. If you read enough announcements, you quickly learn to read between the lines.
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