Is Buying Stocks in New Company of a Friend a Good Idea?

Posted by Grace under Investing on January 26, 2016

In our Q and A section, a reader asked; is buying stocks in new company of my friend a good idea? What is the catch why he want me to invest money in his new company? What should I consider when choosing stocks to buy? Even if your friend promise you a guaranteed return on you investment, you should think twice before you will invest money in his new company.

Beware of the so called “investing” and “favor”. Don’t invest because your friend asked you to invest. Invest money because you studied the risks and the potential growth.

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Buying Stocks in New Company

First of all, you should be aware that it is just a financial favor if your friend wants you to invest money in his new company even if his new company is not yet offering IPO. IPO means initial public offering.

Otherwise, it is just a partnership between you and your friends. If you trust your friend’s ability and you think there is a huge potential in his new business, then invest money in his new company. But, invest only what you can afford to lose.

When is Buying Stocks in New Company Profitable?

You should make a fundamental analysis when buying stocks whether the stocks are from old or new companies. The more you analyze a new company, the better. You should make a decision according to the products or services offered by a new company, its stability, its balance sheet.

So the answer to the question is “buying stocks in new company of a friend a good idea” is;

  • Yes, if you analyze the company’s potential growth.
  • No, if a friend only wants you to invest for financial favor for his new company.

What about you? What is your opinion on this question? Is buying stocks in new company of a friend a good idea? If YES, why you say so. If NO, explain your answer in the comment box below.

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