Hey guys, it's Sasha There is a growing trend of Finance Gurus on YouTube and around the interweb recommending people invest in specific stocks. The average age of these Finance Gurus seems to be about 18 and they use the Decades of investing experience they have built up to suggest amazing companies you absolutely must go and invest in to make something like 420 return in the next year now. I Never recommend anyone invest in any specific stock even though I do share my personal take and Analysis at times on companies that I personally am interested in. but given there seems to be an epidemic of really bad stocks being actively recommended.

I Thought I would make an exception and make a quick video to tell you which stocks you should not be investing your money in unless you specifically don't like having money or perhaps have a weird Affliction which means that you enjoy watching your money burn. Now let's start with one of the dumbest things that I see over and over in the world of stock picking Gurus. And that's investing in stocks that have no feasible way of making money. The very subtle problem with investing in companies that will never make any money is that losing money forever is a somewhat inefficient commercial strategy, even if it seems to be incredibly popular as a way of investing at the moment.

Now, not all companies that lose money are necessarily a bad investment. In fact, some of the most interesting investing opportunities that I personally like happen to be companies that are coming up to being profitable but are not there just yet and are therefore offer the radar of many more mature investors. So on the surface it can be hard to differentiate between the up and coming company that will soon be profitable will potentially get a lot more interest in the coming months and years, and a dud that has no chance, but there are typically a few telltale signs. First look at the company's gross margin tattooed Chef is a company that was weirdly popular on YouTube last year.

Pretty much everyone was talking about it and you can see that their gross margins are incredibly low. In the last two quarters, they had a negative: a gross margin, which is ridiculous for a business that produces food. This means that the cost of producing and distributing their food products is higher than the price at which they sell them, so the company is losing money before you even look at any of their operating cost. marketing r d General Admin Finance cost cost of Service in debt or anything else.

this is really bad and different. Industries Will have different typical gross margins. Industries that do manufacturing, production of physical Goods will often have a gross margin, maybe around 15 to 30 percent. It does vary.

Tech companies that sell services or software can have gross margins as high as 75 or 80 if a company is a way off their peers in terms of their gross margin compared to what everyone else is doing without a very good reason for it, or if their gross margin is negative, it's a major red flag that you should pay a lot of attention to. Even if the gross margin is not too bad, pay a lot of attention to what the company is spending their money on in their operating costs. Money spent well on marketing or product development can be a good ominous success if the products and services the company is developing are good money throwing ads, stupidly expensive offices, or insane compensation packages for the execs before they've even made the first version of their beta prototype is often a sign that the company is full of. Another really common mistake is to invest in companies just because they happen to be in a trendy Niche People will go and look at a company that is Absolute Total garbage, but happens to be in an industry that is up and coming.

and because the industry is the future, people start ignoring absolutely every red flag about that company. Last year, every EV company Under the Sun was declared as the best thing ever by Finance YouTubers Remember, when arrival was the hottest thing ever, a company that had never made a single EV or even came close suddenly became worth 20 billion dollars for no reason whatsoever. But every Finance YouTuber for some weird reason, decided it was a great stock at exactly the same time Completely, Coincidentally, all went the same exact thing happened with Workhorse or Canoe or Nicola Motors or Lordstown Motors or Hillion or Asimoto. What's up? This is fun.

Or when Riven and Lucid stock went absolutely insane or ridiculous. Run when they suddenly became some of the highest value car companies in the world. I Made a video at the time saying how stupid it was. Nobody really wanted to listen.

An early stage company In an early stage industry is an incredibly high risk investment because the vast majority of companies that try will end up failing and likely will end up being bankrupt. But investors don't seem to care. Everyone jumps on each of these bandwagons every single time. Often, companies that have no realistic plan of ever making a single car will be valued in a TENS of billions.

Many of these companies are several years away from profitability if everything works out with a very high chance of things not working out and then running out of money along the way. So although there are occasional gems within that pack like Tesla in the EV space that is now printing money for fun, the oh, overwhelming likelihood with the rest is that you're going to lose all of your money as the company goes bankrupt after paying the exact a boatload of fat bonuses. Next up, be very careful investing in companies that have a toxic balance sheet. Interestingly enough, most investing gurus don't seem to even know what the balance sheet is, but more often than not, when you see a bad balance sheet, you're probably looking at a very badly run business.

The first important thing to look at is how much cash and cash like assets a company has on a balance sheet and how far those are going to last. Most things on there on the balance you don't count because it's a figment of accountants doing accountant things. The key items that you should really be looking at are things like cash short and marketable securities, long-term marketable Securities and accounts receivable. So basically cash Investments that could become cash if necessary money that customers owe to the business but haven't paid yet.

then I would go and look at the cash flow statement and see what the operational cash flow is. If it's positive, that's great. It means that in 10 terms of real cash in cash out, the company is at least not losing money, which is a good place to start. If it's negative, you want to know that there are enough cash-like assets for the business to not be in trouble for at least the next 24 to 36 months.

You probably also want to know why it's negative and how it's going to stop being negative. That may be a little bit more difficult than going back to the balance sheet. Look at the long-term debt. A giant pile of long-term debt is a brick that can sink a business the moment that the going gets tough and in an unprecedented unpredictable Financial environment like what we're seeing right now, the moment that debt has to be refinanced when rates are much higher than anyone expected, the cost of servicing that debt can begin killing the business very fast.

There is nothing that can murder a business faster than running out of cash and nobody wanting to lend you money to plug the Gap Look at Peloton the stock that was crazy popular on YouTube a few months ago for reasons that I cannot fathom. The company has right now 940 billion dollars worth of cash and another 82 million dollars in accounts receivable. Plus this 78 million dollars down here in restricted cash, those are the only assets that are actually worth anything. Things like intangible assets Goodwill value of the operating leads, blah blah blah.

Those are just numbers on paper that don't really mean very much in terms of the business being able to survive so there's just over one billion dollars in cash and other useful assets. Then go and look further down on the balance sheet and you can see that the current liabilities sit at 927 million dollars. That's the money that Peloton will have to pay out in the next 12 months. And then scroll down to the cash flow statement and you can see that these guys are burning at a rate of 203 million dollars in operating cash flows per quarter.

and they also burnt another 44 million dollars on Capex. So roughly a quarter of a billion dollars per quarter. So if the 927 million current liabilities are spread evenly across the four quarters, there probably aren't. But if they were, Pellisson doesn't have enough cash right now to survive the next three quarters.

So their entire Focus right now as a business is going to be on pure Survival on cutting their cash burn and probably on trying to borrow money or raise Capital against equity which is now worth almost nothing instead of you know, actually focusing on growing the business and investing into growing their business now. I Am not going to talk about obvious stuff in this video I Am not going to preach about not investing in meme stocks or pretending that you're a big shot and losing all of your money on it. Short squeeze because some people in the subreddit told you that it's the best thing since sliced bread. I Presume that most people have enough sense to not do really obvious dumb.

although the last couple of years do make me question whether most people do have enough sense. but I will cover one point that I know will rub some people up the wrong way because there is a fast growing trend of people investing money and being influenced to invest their money based on Trends or short-term expectations. There's a whole plethora of stupid versions of this on the one end of the spectrum, you have people investing based on patterns on Candlestick charts because they watched a YouTube video which taught them the beautiful art of predicting stock prices based on whether candlesticks look like a head and shoulders pattern or a falling wedge or a rising wedge or knows what wedge. If there is one bit of advice that I can give you on this channel, please do not base your investing decisions on the BS that you see all over YouTube and social media that people think constitutes technical analysis.

And on the other end of the spectrum, you have this thing with people investing based on perceived Cycles Like right now is a great time to invest in gold or silver or something because the constellation of Aries has fallen particularly low in the night sky and you saw two black cats on the way home from work last night. Or maybe investing in energy stocks right now is a good idea. Or maybe it's a particularly bad idea because you can accurately forecast what the geopolitical situation in the next two years is going to look like, what the economy is going to do with cetera. Etc The vast majority of active investors something like 95 to 98 who try to outperform the market based on cyclicals Based on trying to forecast these patterns will fail.

It is a false errand and it's a very, very fast way to lose your shirt trying to predict the swings. The truth is, most people should not be investing in individual stocks anyway because most people will underperform the market by doing it. But I know that you all know that and you're going to go and do it anyway. But while you're at it, try and not make it a whole lot harder for yourself.

And don't go out of your way to invest in bad stocks. If you found this video useful, please don't forget to smash the like button for the YouTube algorithm and thank you so much for watching! I Really appreciate it I'll see you guys later.