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5 Ways To Lose Money On Stocks


wealthymatters.com

Here are 5 situations that Whitney Tilson lists where investors can lose money:

1. The game has changed.Bargain Hunters and Bottom Fishers Beware!There’s a fine line between opportunity and trouble when a once-strong business goes into decline.

2. High and rising debt. Value investors are naturally drawn to companies in trouble — that’s what makes stocks cheap if the difficulties prove to be temporary. But too much debt can ruin even the best-planned turnaround.

3. Consumer fads. When investors extrapolate far into the future what are highly likely to be impossible-to-maintain growth levels, trouble follows.

4. Serial acquirers or mega-acquisitions. Given the research showing that a significant majority of acquisitions are value destroyers for the buyers, it’s remarkable how frequently investors get excited about roll-up stories or big acquisitions.

5. Aggressive accounting. The gray areas in accounting leave managements considerable leeway in how aggressively or conservatively to represent company operations. When a company’s accounting treatment creates more questions than answers, something is usually wrong.

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6 Investment Rules


wealthymatters.comThe secret to doing well in stocks over the long term is to avoid making big mistakes rather than being spectacularly right a few times in one’s career.After all it just takes just one big enough mistake to wipe away all the gains of the previous years.The following checklist is to help avoid making major mistakes.

1. Avoid following the crowd.
Avoid the hottest stocks in the hottest sectors, which are invariably priced high.It’s far safer and more profitable to invest in stocks of companies that are either well-known but currently out of favour or not tracked at all by analysts often simply because they are too small to be of interest to institutional investors.

 2. Look for consistently positive cash flow and beware of debt.
Share holders make money through dividends.The company first needs to throw off cash through its operations to be in a position to reward shareholders consistently.Debt reduces the surplus available for share holders.Excessive debt might kill a company in bad times.

 3. Avoid serial acquirers and if necessary buy stocks of good companies after big acquisitions.
Making many small acquisitions or one big one are both fraught with peril, yet some managements insist on engaging in such behaviour regularly. They often fritter away the resources of their companies and shareholders in this way.If you must buy a company that has just made an acquisition buy after the deal , when the share price has dropped , not in the frenzy before the deal. Read more of this post

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