These are guidelines, not rules. Over the years, I’ve picked up a few tricks of the trade, which might come in handy for you punk rookie bastards.
Avoid owning stocks who’ve missed earnings within the past 4 quarters. See DDD and CREE for anecdotal evidence.
If the SEC is investigating your company, it’s best to avoid it.
If your stock went up on merger news, sell it. The deal might fall apart later on. See Shire.
If you bought a stock, it went down, then the volume dried up. That might turn into a roach motel. It’s best to avoid and buy something with greater liquidity.
Avoid companies with debt/equity levels over 4, unless coming out of a recession and the underlying industry is turning the corner. If that’s the case, that debt laden company might soar in price, thus naturally lowering said ratio.
Avoid holding stocks with price/sales ratios over 15 for extended periods of time. More often than not these stocks will correct, severely, at some point.
Avoid biotech stocks with phase 1 drugs, burning through cash, years away from a revenue stream. That company will do dilutive financing at some point, in order to fund their research.
Avoid stocks who have large debt payments due. If XYZ’s bonds are coming due and they don’t have the cash, they will either restructure (with bank’s permission) or do a dilutive secondary.
This one sounds simple, but is sometimes ignored. Avoid stocks that go down all the time. The odds of you catching the bottom on a falling knife is low. Wait for the stock to base out and strengthen before buying.
Winners rarely correct–because the business is great. Sometimes it makes sense to chase growth, even if the multiples are high. Great companies will meet and exceed estimates, rarely giving dip buyers a chance to get in.
If you want out of a stock, quit playing retard games with limit orders. I can’t tell you how many idiots end up stuck in bad stocks because their limits don’t get hit. If a stock is $30×30.05 and you want out, put a limit order of $29.90 and get done. Or, if it’s a very liquid stock, do a market order. The same thing applies when buying. While limit orders can save you money, often times, I find them to be time sinks and a pain in the ass.
Avoid owning Chinese burritos that have come under scrutiny from renowned short sellers. More often than not, they are right.
Feel free to add some of your red flags.