Ten Warning Signs of a Stock Headed South
With so much speculation concerning a recession, people are starting to wonder if we will experience a market crash. Stock investors who worry about such things have legitimate concerns. However, it is important for investors to understand that these types of corrections have occurred time and time again throughout history. In most of those situations, people who were not simply scared out of their stocks benefited greatly in the long-term.
Regardless of whether there is or is not a market crash, stock will perform much better than other investments (such as bonds and CDs) over time. So, instead of running for the hills, investors should try to make a rational decision about their position in the stock market. For one, during times of uncertainty, defensive stocks such as utilities, food, etc, generally perform better than growth stocks and the general market. Defensive stocks perform better because the products/services that they represent are needed and in demand regardless of the condition of the economy. Also, it is important for investors to continue to diligently monitor their stocks for warning signs. That is why I have listed the ten following warning signs of a stock decline:
1) Earnings Slow or Decline; Since the whole purpose of being in business is to make profits, declines in earnings are a red flag. However, during periods of recession, it’s natural for a company to experience some difficulties. So, everything is relative. Some earnings are better than no earnings or huge losses.
2) Sales Slow or Decline; This one is simple. If companies don’t sell they don’t earn! More so than earnings, sells should be strong and rising.
3) Enthusiastic Analysts Despite Logic; This point is here to remind you to always do your own homework. Remember that analysts don’t always have your best interest in mind and may have alternative motives for hyping a stock.
4) Insider Selling; If key employees of the company (CEO, treasurer, etc...) are selling off a lot of stock in a relatively short period of time, there may be trouble.
5) Dividend Cuts; Dividend cuts indicate that a company may be having trouble with earnings or cash flow. Therefore, dividend cuts are a negative sign.
6) Increased Negative Coverage; Negative attention is always bad for a stock’s price.
7) Industry Problems; If the industry that a company is in is struggling, trouble for the company is likely to follow.
8) Political Problems; This point is here to remind you to be aware of any political developments as they may have adverse effects on your stock.
9) Debt Too High; Too much debt is a company and a personal killer.
10) Weird Accounting; In general, the numbers are what tell you whether or not to invest in a stock. If something about a company’s financial statements doesn’t seem right, be very careful and investigate further. Get help if you need too!
