Beyond Meat's (BYND 4.19%) share price certainly has seen wild swings. It became a meme stock last month when retail traders piled in following online posts.
The share price leaped from $0.52 on Oct. 16 to close at $3.62 just five days later. The price crashed over the ensuing days, closing at $1.27 on Nov. 5.
NASDAQ: BYND
Key Data Points
While this makes for interesting news, it's also reinforced some important and prudent investing lessons for me, which I'd like to share.
Image source: Getty Images.
1. You can't predict short-term movements
No one can perfectly predict the future. But it's abundantly clear that investors can't know what will happen to stock prices over the course of a trading day.
That's because a lot can occur that can affect short-term volatility. This includes broad economic news, election results, or online postings.
Since you don't know what will happen or how an individual stock will react, it's best to avoid day trading.
2. Think and research for the long term
Given the impossibility of predicting short-term stock prices, I'd advise looking for stocks that you can invest in for a long time. Remember, legendary investor Warren Buffett's favorite holding period is forever.
Granted, it's hard to find stocks worthy of a long-term commitment. It's also challenging when companies like Beyond Meat see their stock prices soar.
However, there's no shortcut to building wealth. It's important to examine a company's fundamentals before making an investment.
It's also imperative to do your own research rather than buy a stock based on recent price movements or on other people's thoughts.
A look at Beyond Meat's results tell you the company's not performing well. The maker of plant-based meat's second-quarter results showed revenue dropped 19.6% to $75 million. And Beyond Meat recorded a loss under generally accepted accounting principles (GAAP) of $29.2 million.
Moreover, after revising second-quarter results to correct selling, general, and administrative expenses, management has delayed its third-quarter earnings release by a week to examine impairment charges. Delaying and correcting results should make investors wary.
3. Approach penny stocks warily
Admittedly, penny stocks, defined as those with prices less than $5, have allure. After all, the investment objective is to buy low and sell high.
Well, it's hard to have a lower price than these stocks. However, it's important to remember that these stocks sell at low prices for a reason.
The prices are also subject to large swings since they may not be the most liquid stocks. Hence, I'd advise avoiding penny stocks altogether.
