Stock Investing For Dummies®, 3rd Edition

Chapter 24. Ten Red Flags for Stock Investors

In This Chapter

• Seeing a slowdown in earnings and sales

• Keeping an eye out for high debt or low bond ratings

• Staying aware of industry or political troubles

• Investigating insider selling and questionable accounting practices

Have you ever watched a movie and noticed that one of the characters coughs excessively throughout the entire film? To me, that's a dead giveaway that the character is a goner. Or maybe you've seen a movie in which a bit character annoys a crime boss, so right away you know that it's time for him to "sleep with the fishes." Stocks aren't that different. If you're alert, you can recognize some definite signs that your investment may be ready to kick the bucket.

Let the tips in this chapter serve as a symptoms checklist on your stock investment. This chapter helps you catch your stock as it starts to cough so that you can get out before it sleeps with the fishes. (I just can't help you with mixed metaphors.)

Earnings Slow Down or Head South

Profit is the lifeblood of a company. Of course, the opposite is true as well — lack of profit is a sign of a company's poor financial health. Watch the earnings. Are they increasing or not? If they aren't, find out why. Keep in mind that if the general economy is experiencing a recession, stagnant earnings are still better than robust losses — everything is relative. Earnings slowdowns for a company may very well be a temporary phenomenon. If a firm's earnings are holding up better than ...