These 3 Stocks Might Be Great for Gambling, but They're Terrible Investments

Serious investors must know the difference between great investments and speculative casino chips. These three stocks only qualify as gambles.

Mar 13, 2014 at 2:00PM

Great investments can be risky. But that risk is always balanced by an outsized potential return, dampened by strong fundamentals, and ultimately defused by strong management with a vivid and long-term business plan. There's no such thing as a safe bet, but many of the best wealth-creating investments come very close. In the long run, making a number of these low-risk investments will set you on the path to long-term riches.

And then there are the poker chips masquerading as investments.


Does this look like a hotbed of solid investing to you?

Stay away from these at all costs. When obvious risks gather over your chosen ticker, and don't have the advantage of terrific management, solid financial footing, and reasonably strong returns, you're better off just buying a Dow Jones (DJINDICES:^DJI) tracker ETF fund instead.

Let me show you a few examples of what to avoid. Spoiler alert: turnaround plays are notoriously difficult and rarely worth the risk.

BlackBerry (NASDAQ:BBRY) led an unsuspecting world into the smartphone era with a bevy of secure, reliable, and beautiful keyboard-equipped handsets. Before Android vs. iPhone, it was all about the CrackBerry, so nicknamed because of its addictive effect on early adopters.

But the Canadian company missed the boat when smartphones grew into the consumer space, and then the rot spread into BlackBerry's traditional corporate market as well. Now BlackBerry has lost all credibility as a smartphone provider, the stock has lost 93% of its value in six years, and heads have rolled in the executive suite. Meanwhile, the Dow gained 44% -- and that includes the bloodcurdling 2008 crash.

BBRY Revenue (TTM) Chart

BBRY Revenue (TTM) data by YCharts.

It may seem tempting to pick up some BlackBerry shares on the cheap, hoping for a rebirth in secure messaging software or maybe patent-wrangling lawsuits. Feel free, but don't call it an investment.

Even new BlackBerry CEO John Chen might agree. He recently said that his turnaround efforts have "a 50/50 chance" of getting the company back on track. If that doesn't happen, the stock can still fall much further.

Chen's levelheaded realism is the one thing that BlackBerry has going for it these days. If even he admits that he's basically running a gamble on a grand scale, why should investors feel any different?

VirnetX (NYSEMKT:VHC) is a very different beast. BlackBerry knew success firsthand but lost it. VirnetX is still trying to make its first splash, in a lawsuit-powered strategy with very little business substance.

The company holds about 50 U.S. and international patents on aspects of data security. The big dream is to make billions as 4G mobile networks allegedly must use VirnetX security features -- for a fee. On that basis, the company has sued a number of tech giants in the hopes of a big payoff, or at least some major settlements. A couple of court decisions have gone VirnetX's way, but only one settlement so far has resulted in a cash payment.

So VirnetX keeps knocking on courthouse doors (mostly in notoriously litigant-friendly Tyler, Texas), while its much bigger and richer targets prefer to appeal their losses rather than paying up. Tech industry targets stand united in believing that VirnetX's claims are hogwash.

Meanwhile, VirnetX burned $27 million on the bottom line last year on record revenue of $2.2 million. There's no genius management going on here -- the company is racing against the clock as that single settlement is paying for operations four years later, and that imagined payoff looks like a huge mirage.

Again, gamble with VirnetX all you want, but don't call this an investment. This stock can't hold a candle to the Dow.

VHC Chart

VHC data by YCharts.

Let's end this with a dead retailer walking.

RadioShack (NYSE:RSHCQ) seemed to be marked for the graveyard in 2008. The electronics seller still had cash reserves and a positive net margin, but sales were in a freefall. The stock had lost about half its value over a three-year span, and already earned a shameful one-star rating in our CAPS system.

The rise of online commerce continued to take its toll on RadioShack, but somehow the death blow never landed. Until now.

The struggling retailer is closing 1,100 stores, reducing its physical footprint by about 20% in one fell swoop. The chickens are coming home to roost. Once worth more than $12 billion, RadioShack's market cap is down to just $220 million.

If you want to bet on a turnaround from this level, you're a braver card shark than yours truly. This is the kind of unstoppable death spiral that even a world-class turnaround genius couldn't stop. The financial platform is nonexistent and I'm not sure that there's a future for mall-based retail specialists anymore.

Once more, RadioShack investors would have done far better with a simple Dow tracker, such as the SPDR Dow Jones Industrial Average ETF (NYSEMKT:DIA). And there's no reason to believe that RadioShack will return from the brink this time.

RSH Market Cap Chart

RSH Market Cap data by YCharts.

Financial Advisors Hate This Man
Believe it or not, even some of the wealthiest individuals in America fall prey to these elaborate decades-old schemes. These 5 simple questions will reveal whether your financial advisor is using them as well... 

Can you answer "YES" to these 5 questions?

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned (thank goodness!). Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers