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Fire Your Stock Analyst!: Analyzing Stocks On Your Own, Second Edition by Harry Domash

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10. Analysis Tool #7: Analyze Financial Fitness

Picking financially strong stocks is critical to investing success. This chapter describes how to achieve that goal.

Financial Fitness Counts

Stocks move up or down on a daily basis for any number of reasons. But in the long term, only two factors account for most stock losses:

• Earnings growth expectations drop.

• The market believes that the company is running low on cash and might file for bankruptcy.

Most analysts and individual investors concentrate on the first one and don’t worry much about the second.

For proof, look no further than Fannie Mae, Freddie Mac, or AIG. All three were taken over by the U.S. government in 2008 to prevent them from filing for bankruptcy. Yet, despite numerous ...

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