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Posted on 10 September 2011.
Ideally, high risk stocks offer correspondingly higher returns. All stock offerings have the potential to become high-risk at any time. Nonetheless, certain immutable economic factors render some stocks inherently riskier when compared to others. Accurate identification of superior high risk securities is reducible to two primary tasks: definition and desirability.
Relatively risky business concerns that need to raise capital offer high risk stocks. Short-term factors like trade volume always influence stocks’ relative risk levels. However, stocks consistently characterized as “high-risk” originate from riskier commercial ventures. This higher perceived risk results from a greater statistical likelihood of ultimate business failure and concurrent loss of investors’ capital.
* Absent or inadequate registration
* Brand new business venture
* Corporate under capitalization
* Managerial deterioration
* Overall industry weakness
Many investors are pleasantly surprised to learn that good high-risk securities actually exist. The key to selecting desirable high-risk stock investments is being able to accurately distinguish between perception and reality. Many stocks are categorized as high risks merely due to statistical probabilities. Such theoretical figures do not mean that the eventual failure of a business is certain, however. Look to the following indicators to glean a fuller view of the stock’s probable future performance:
* Strong quarterly reports
* Huge industry growth potential
* Product/service innovation
* Unique competitive advantage
* Exceptional value
* High demand within non-saturated markets
Investors must evaluate these and many other factors when assessing the financial feasibility of various offerings. The relative risk levels of “risky” stocks vary widely by features like revenue consistency, debt/income ratio, and cyclical cost conversions. These interactive factors are dynamic and complicated. However, the effort invested in learning how to identify the best high risk stocks is well worthwhile!
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