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Investors can sometimes get caught up in chasing what appear to be the hottest stocks to buy now - but they can turn out to be the biggest mistakes.
You see, at any given time in the stock market there are the darling stocks that are making new highs and have exciting new products rolling out.
These stocks often carry huge risks.
They're often so richly valued that they are totally disconnected from any rational valuation of the business. They're more like bets in the world's largest popularity contest than ownership interest in a business.
There are a couple of those that are easy to spot today.
Companies like Tesla Motors Inc. (Nasdaq: TSLA) and Netflix Inc. (Nasdaq: NFLX) are in that group. They trade at multiples of earnings, cash flow, and assets that defy a sound investing explanation.
Those stocks may be exciting, but by the time they've hit mainstream news due to their high share prices and new products, investing in them is like placing chips on a roulette wheel - the odds aren't in your favor.
Why to Look for Boring Stocks to Buy
Quite often boring can be much better for your financial health.
Unless you're experienced enough to do some active trading, finding good companies with solid financials in a steady business and holding them for years rather than hours or days can be much better for your net worth.
Individual investors have a significant advantage with these stocks in that they do not have to engage in the quarterly portfolio comparison and performance derby and can hold stocks long enough for the value of the business to grow over time.
That's why I like the looks of a certain "boring" stock that's involved in industrial hardware, security products, and metal castings.
But there's nothing dull about its long-term profit potential...
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.