Someone wise once told me…
"I'm very convinced that some of our best investing successes are the companies we avoid rather than the companies we buy."
His name was Scott Phillips, lead investment advisor of Motley Fool Share Advisor. His track record speaks for itself.
But his advice to me on this occasion was more than just banal words off the cuff.
For every dollar we waste on sub-par investment ideas, we're doing our future selves a great injustice.
Just take a look at the following graph…
…Two individuals start with the same amount of money ($10,000). However one — represented by the red line — loses 50% within the first year of investing. Let's call him or her the speculator.
The other individual, represented by the blue line, is more conservative and makes 5% per year, every year.
From the chart we can see that even if the speculator makes 10% per year for the next 15 years they still wouldn't have done as well as the conservative investor who makes a measly 5%.
In fact, it takes 17 years for the speculator to breakeven with the conservative investor, even though he or she may have doubled the returns of their counterpart for more than 15 years.
So what's the moral of the story?
Don't lose money.
10 stocks I'm avoiding in 2015
That's why its vital investors looking to make as much money as they can from their share market investments have a firm grasp on the risks of any given company before focusing on the potential for capital gains.
Remember also that investing is a long-term pursuit (five years or more) and if you are truly aiming for the horizon, it won't hurt to say "no" to investment ideas more often than not.
That's why I'm avoiding big bank stocks like – Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ).
They're great businesses, sure, but at these prices the chances of delivering market-beating returns are slim (at best!), whilst the risk of capital loss is large.
I'll wait on the sidelines for a much better entry point – which, if I was to guess, is unlikely to occur in 2015.
For similar reasons mortgage insurance provider, Genworth Mortgage Insurance Australia (ASX: GMA), is also in the 'no fly zone' for my portfolio in 2015, perhaps even longer.
Another one is Qantas Airways Limited (ASX: QAN).
Richard Branson – the founder of the world-recognised Virgin brand – summed-up investing in airline stocks best when he said:
"If you want to be a millionaire, start with a billion dollars and launch a new airline."
I rest my case.
Another no-brainer for me are iron ore stocks.
The recent fall of junior iron ore miner, Atlas Iron, should be ringing alarm bells for anyone heavily invested in the sector. Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are two stocks I'll be avoiding in 2015.
Also on my list is mining services business, Monadelphous Group Limited (ASX: MND). Like its commodity-producing peers, this services business is facing a number of significant headwinds which could go on for some time yet.
Finally, Metcash Limited (ASX: MTS) is being displaced by a price war between its two most dominant rivals, Coles and Woolies, but also by foreign giant Aldi. Despite a big dividend, I'd rather wait on the sidelines to see how this one plays out.
Here's 1 stock I've already bought in 2015
