Tuesday, September 04, 2007

Dreadful Stocks to Avoid

1. Business that bet.
In some industries, companies occasionally have to make critically important decisions. If the company makes the wrong choice, it will be dealt a crippling blow.

2. Businesses dependent on research
Innovative companies are required to do research simply to maintain their competitive position. And if the research dries up, the company suffers.

3. Debt-burdened companies
During the GOOD times,large amounts of debt means cash, that could be put toward growing the business,instead of rewarding shareholders,cash is used to servicing the debt.In a crisis, debt greatly limits a company's options and can sometimes lead to bankruptcy.

4. Companies with questionable management(NO EXAMPLES R NEEDED HERE)
Management has incredible power. If executives want to enrich themselves at the expense of shareholders, either directly or by misrepresenting the company's prospects, individual shareholders have almost no hope of stopping them.

Some clues to look for here include excessively optimistic press releases,overly generous compensation or options grants, and frequent blaming of external circumstances for operational shortcomings.

WorldCom and Enron shares may have risen for years, but at the end of the day,shareholders received almost nothing. That's why,questionable management is the worst flaw a company can have.

5. Companies that require continued capital investment
Companies that constantly need to make additional capital investment to keep the business going are in this ideal category.
The main beneficiaries will be employees, management, suppliers, and government.In other words, money goes everywhere except to shareholders.

Summary:
These characteristics don't necessarily make a company a bad investment.Dow Chemical,for instance, has been a great long-term investment despite ongoing R&D and capital expenditures.
But a solid understanding of why these types of companies may be undesirable can help you identify whether a company that looks good on the surface might actually cost you money later.
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