Red Flags To Avoid When Selecting Stock

Posted by Nick Niesen on November 8th, 2010

Every stock selection system has its own take on how to select a profitable stock. Each system has ways of limiting loss and hopefully maximizing gains. Unfortunately, even with all the educational material available to the stock investor, it seems most are still picking poor stock and losing money. Here are several red flags to pay attention to when selecting stock, to avoid investing in losing propositions.

One red flag to pay attention to is unstable earnings. If a company?s earnings and growth are volatile, you can expect the company?s stock to follow suit. Large expansions, company restructuring, and other large expenses can temporarily set back a company?s earnings, but a company?s general picture should show that the company is consistently growing and pulling a profit. In fact focus solely on stocks with super earnings growth. this is what the big funds love and when they buy in they wil lcreate the trnds for us to profit in. With so many choices there's no point in leaving your money in B stocks whn there is great money to be made in A+ stocks.

Another red flag is a company that is heavily in debt. While many companies enjoy the benefits of leveraging debt to expand the business, but a company carrying too much debt becomes a financial risk. Just as a financial institution wouldn?t want to extend a loan to a company who?s heavily in debt, you shouldn?t invest your money for the same reasons.

Remember to keep these red flags in mind as you?re picking your stocks. Do your research before you make a purchase. Buying stock without properly educating yourself and doing your research is gambling at best, pouring money down the drain at worst. While these red flags may not show up in every trade consideration, even if they just show up once in a while, they can save you thousands of lost dollars from making a poor investment.