Yesterday, I highlighted some of my best stock tips for 2019. There were some absolute crackers, including JD Sports Fashion (up 107%), Alpha FX (up 65%), and Gamma Communications (up 58%).
Yet investing isn’t just about picking winners. It’s also very much about avoiding losers. With that in mind, here’s a look at three of my top ‘avoid’ calls so far this year.
One this year has been Metro Bank. On 14 May, I said that it was “definitely a stock to avoid.” Admittedly, I was a little late to the party here, as MTRO shares had already fallen significantly. However, since mid-May, the stock has fallen another 63%.
Why was I so bearish on Metro in May? Simply because the stock was being heavily shorted by hedge funds. At the time, it was actually the most shorted stock (nearly 12% of its shares) in the UK. Whenever I see that kind of short interest, I steer clear.
Other stocks that crashed spectacularly in 2019 after being heavily shorted include Kier Group, Thomas Cook, and Debenhams (I warned investors about Kier and Debenhams in late 2018).
Next up, one of the UK’s most traded stocks, Sirius Minerals. On 18 March, I said I would be “continuing to steer clear of SXX shares” due to the fact it wasn’t generating revenues or profits, and that short interest was increasing.
In hindsight, that was a great call as, since that article, Sirius’ share price has fallen from around 20p to just 3.6p, meaning it’s lost over 80% of its value. Ouch. Hopefully, my piece saved some investors from losing money.
Ultimately, Sirius is a good example of the risks associated with investing in ‘jam tomorrow’-type companies that aren’t yet profitable. If things don’t go to plan, it can get ugly very quickly.
The Neil Woodford scandal
Last but not least, the Neil Woodford debacle. After first warning about the composition of Woodford’s Equity Income fund in February 2018 (yes 2018), I warned investors about this fund again in April this year. I was concerned it held a large number of highly speculative stocks that weren’t suitable for an equity income fund and, as a result, I said I’d be “continuing to avoid it.”
Looking back now, that was a very astute call. Just six weeks later, the fund was suspended. Since then, it has been announced the fund will be wound up, which means that many investors are likely to get back less than they invested. All in all, it’s a disaster. Hopefully, my article in April convinced a few readers to get out of the fund before it was too late.
Overall, these three calls could have helped you avoid big stock market losses. Tune in next year for more insight that could help you avoid losing money on stocks.
Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.