I'd avoid Challenger Ltd (ASX: CGF) shares, Aconex Ltd (ASX: ACX) shares and BHP Billiton Limited (ASX: BHP) shares if I were investing for retirement.
Rule #1: don't lose money
Rule #2: don't forget rule #1
In the sharemarket, investors make money by holding shares, not buying or selling them. However, successful investing is more about avoiding losses than it is about achieving high returns. So risk management is vital for long-term investors.
Fortunately, with over 2,000 shares on the ASX, one of the easiest ways you can put the odds in your favour is by avoiding overpriced shares.
Here are three ASX shares I'd avoid right now.
Challenger
The Challenger share price has risen from strength to strength over the past few years, as annuities have become a mainstay in retirement portfolios. Most analysts who talk about investing in Challenger describe it as a 'great strategy to harness the financial power of baby boomers entering retirement', or something to that effect. However, I doubt many of these analysts have stress-tested their financial models or even understand how the products are affected by changes in the market environment.
Ultimately, by playing the greater fool theory with a company that guarantees an investment return for many years is fraught with risk. While the underlying annuity holders should come away unscathed, history is littered with financial companies getting caught between these guarantees and adverse market conditions. As a litmus test, Challenger is not a company I'd be comfortable investing in with my parent's money. So I don't recommend you do it, either.
Of course, that's just my opinion.
Aconex
There's a lingering smell around Aconex, despite its 33% fall over the past year. The construction software business disappointed investors when it downgraded its lofty profit growth expectations. While the company is still expected to grow 'profits', even if it hits those targets its shares are still very richly priced.
For an $850 million company with little cash flow, I'm surprised it hasn't fallen further. However, I'll admit, it does have levers it can pull to improve profitability. But that could take some time and isn't guaranteed (see above).
BHP Billiton
BHP Billiton forms the bedrock of many Australian share portfolios, but why? Is it iron ore? Its US oil business? Copper? Or coal? In my opinion, the recent rally in the mining giant's share price has only served to emphasise how volatile and unpredictable commodity prices can be.
It has among the lowest costs in many product groups, which means it is unlikely to go bust. However, despite its scale, it cannot control the price of its products, which makes it pregnable to changes in external market conditions.
There may come a time to buy BHP shares, but it is not now, as prices for its key businesses have skyrocketed over the past year. Look for mine closures, bankruptcies and production cuts as the catalysts for doing further research on the company.
