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I hear from a large number of traders and investors who have taken a position in ‘pipe dream’ stocks and are surprised when they stop going up in price. These sorts of companies are built primarily on online hype and often little else.

We have noticed an increase in the phenomenon, which is largely due to the increasing popularity of online investing communities.

There is nothing wrong with getting tips from message boards or Facebook groups. However, that cannot be the extent of your research.

Here are some simple things to consider when making an investment:

  • Is the company looking to make money for investors? Or From investors?
  • Does the company have a realistic path to profitability in the foreseeable future?
  • Is the company looking to explain their business to investors? Or are they looking to pump the share price higher in the short term?

If a company’s announcements appear to be little more than a short-term marketing exercise, or if you only hear about a stock from a Facebook post with rocket ships, its important to dig a little deeper.

Watch the latest edition of our EFG Podcast to hear more about some of these sorts of businesses and some things you can do to protect yourself and your capital.