Back In the Danger Zone

Let's spend another day on my list of dangerous stocks, which are usually the most popular stocks among investors. They are good companies, for the most part, and may have a powerful demographic trend providing a tailwind. While that may sound like exactly what you want to own, the truth is that there is too high a price for everything. By the time the trend is identified and the companies have reported several great years of results, their own popularity works against them. It is still a good company, but the price is just too high.

Markets are subject to wild price swings, as we all know. If you own a stock at a reasonable valuation and it drops with the market, you can have a reasonable expectation that the inevitable subsequent rally will make you whole and even profitable. But if you buy stocks at a nosebleed valuation, you may suffer a permanent loss of capital no matter how wonderful the business. Microsoft (MSFT) and Cisco (CSCO) both dominate the tech industry and they have helped to change the world. If you bought into these shares at the height of their popularity, you may not live long enough to see the stock prices reach their former heights. If you bought into the big banks when they were churning out profits from mortgage and securitization in 2007, it will take years, if not decades, to see those stocks at their former highs....437 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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