10 Terrible Stocks That Prove You Shouldn’t Always Buy What You Know

Just because you have a high opinion of a company doesn’t necessarily mean you should own its stock.

Some financial analysts may advise you to “buy what you know,” but that could also lead to problems for your portfolio. You may be stuck with lackluster stocks if you don’t do your research or haven’t learned how to invest money.

Due to the pandemic and its aftermath, some well-known companies have been struggling lately. So, before you buy shares on a name alone, here are a few companies you may want to be wary of.

Bed Bath & Beyond has had several factors working against it in recent months. It recently announced that it will be closing 150 stores across the country and cutting its workforce by 20%.

However, the stock had a big boost by becoming a meme stock, which means it became popular to buy due to social media buzz. 

But social media buzz doesn’t usually take fundamentals into account. Bed Bath & Beyond’s stock has seen an increase in volume due to the attention, but shares are floundering again and are down almost 50% in 2022.

Robinhood was once the darling of day traders who were at home due to COVID-19 pandemic protocols or layoffs. But its popularity slowed down last year after a number of issues, including restrictions on stock trading. 

Robinhood recently announced employee layoffs and settled a class-action lawsuit related to a 2020 data breach. Shares are down about 44% so far this year.

A drop in cryptocurrency markets has caused issues for Coinbase Global. The company — which helps crypto investors buy, sell, and hold cryptocurrency — has been hurt as cryptocurrencies such as Bitcoin and Ethereum declined in value. 

That drop may be less than appealing to some traders, who have turned away from crypto and companies like Coinbase.

DocuSign, which allows users to sign documents electronically, grew at a rapid pace during the work-from-home period due to COVID-19. 

Since then, the company has been struggling with a slowdown in growth and its share price has dropped accordingly. Then, this summer, the company's CEO resigned. Shares are down more than 60% year to date.

Peloton is another pandemic stock that has been struggling as users go back to the office or gym. The exercise equipment company may have grown too fast, leading to excess inventory.

A recent recall of the company’s treadmills could also be hurting the company’s revenue. In December 2020, the stock was trading at around $160 a share. Now, the exercise equipment company is around $10 a share.

Shopify offers business management tools for businesses, including marketing, inventory management, payments, and shipping. It grew during the pandemic as small businesses sought ways to serve customers online. 

But shopping online has taken a hit as more consumers are going back to the office, causing a decline in Shopify’s stock price. Issues with inflation have also made shoppers skittish as they’ve cut back on discretionary spending.

Netflix was a pioneer when it came to streaming services with original shows, plenty of movies, and anything else you wanted to watch. But in recent years, the streaming service sector has become more crowded, leading to an increase in competition.

Consequently, Netflix recorded two quarters of subscriber losses this year, which is a first in the company’s history. The stock, which was trading at around $600 a share in November, is around $225 a share now.

Online furniture and home goods retailer Wayfair may not help your portfolio. The company had seen growth in recent years as people stuck at home during the pandemic decided to redecorate their spaces. 

But sales have slowed down in recent quarters and the company is trying to cut costs now, including laying off 5% of its workforce.

Movie theater chain AMC was another meme stock that received a boost last year after becoming popular on social media and online message boards. But issues facing the entertainment industry have been driving it down.

The summer movie season may have fizzled with fewer movies in theaters due to production slowdowns during the pandemic and fewer moviegoers returning to theaters. 

The company is also dealing with a lot of debt on its balance sheet, which is riskier with rising interest rates.

One of the best stocks you may know might be your own employer’s shares. But if you’re thinking you can retire early with shares from your employer, you may want to take another look at your financial portfolio.

Stocks and stock options might be a good benefit in your employment package, but you don’t want to hold too much of it. It may be a good move to sell some of your company stock and buy other investments to diversify your portfolio. You don’t want to be stuck with worthless stock if something happens to your company.

Pro tip: If you plan on selling stocks you own in your current employer, check with human resources or someone within the company who can advise you on stock sales. There may be limits on when you can sell stock or how much you can sell.

Now that you know which stocks to avoid, or at least to research before you buy, think about choosing an online brokerage account or find a financial planner to help you determine the stocks that are right for your needs. 

You may also want to consider additional options such as a high-yield savings account, real estate, or other investments to create a diverse portfolio.