Here at The Motley Fool, we make many suggestions each day about which ASX shares we think are worth buying.
However, it can be easy to forget that the ASX is like a minefield. There are many duds out there, and if you step on one you could have your leg blown off.
Let's take a look at two popular ASX shares that I would cross the road to avoid, plus one that I should have dodged many years ago:
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Diversification was great before, so why is it bad now?
To me, Incitec Pivot Ltd (ASX: IPL) is a confused business.
The company has two distinct arms — one that produces fertilisers and another that makes explosives.
The current Incitec Pivot exists after deliberately acquiring different entities to form "a diversified international business".
So originally it must have seen merit in bringing these two activities together.
But after seeing its shares drop more than 26% over the past five years, it openly explored splitting the two divisions.
Last month, the chief executive that drove that plan, Jeanne Johns, departed Incitec Pivot.
Now no one knows what's happening.
Stay away.
Darling turned devil
Investment firm Magellan Financial Group Ltd (ASX: MFG) was once a darling of ASX investors.
The share price pretty much tripled from 2018 to when COVID-19 hit the markets in 2020.
But the past two years have been a terrifying nightmare that investors can't wake up from.
Its funds were underperforming and its rock star co-founder was going through personal problems. There were rumours that he and his now ex-wife would sell off much of their holdings.
In July 2021, Magellan shares were trading near $50. Yesterday they closed at $8.42.
That's an 83% haircut in just 24 months.
Yikes.
While the performance of its funds has somewhat improved, Magellan is still suffering from customers taking billions of dollars out each month. Worryingly, it is institutional clients that are leading the exit.
I wouldn't buy this stock if someone paid me.
Sour as a lemon
One of the biggest lemons in my own portfolio has been Insignia Financial Ltd (ASX: IFL).
The company hit rock bottom several years ago when the financial services Royal Commission suggested the then IOOF had not acted in the best interests of superannuation members.
I bought shares at the time thinking the likely move for the share price would be upwards in the coming years. A decent dividend yield, currently at 8.38% half-franked, helped too.
But nothing much has gone right for the scandal-ridden business, even after rebadging itself to Insignia Financial.
The share price has tumbled more than 74% since January 2018.
Perhaps the Royal Commission troubles are now behind it, but it is facing stiff competition from more modern and nimble investment platforms like Hub24 Ltd (ASX: HUB) and Netwealth Group Ltd (ASX: NWL).
Schroders portfolio manager Ray David told The Motley Fool in February that Insignia is a classic value trap.
"Insignia, to us, it's a declining business," he said.
"You never really want to own legacy technology when there's new tech, new competitors with better technology that are disrupting you and they're lower cost."
