Tuesday, March 28, 2006

Stock Market Shorts - A few indicators

A quick point, a stock can start declining just because less folks are buying it.


There are many reasons a stock can decline.

  • The first reason is that almost all stocks are declining - a bear market. A standard view is that a declining tide lowers all boats.

  • A sector out of fashion by definition will effect all or most of the stocks in that sector. (A company that resists its sector trend is showing strength - it may be the first to rebound if the sector comes back.)

  • The third reason would be company specific. The stock can be in trouble for many reasons, but something will catch the eye of investors and the price will start slipping.


From the Bastiat Free University introduction page - here is a primary reason for a decline in a stock. BFU added a bit about society trends - I've included that also.

In finance there is a rule of thumb for large investors. If they own a great deal of stock in a company and notice the company has not, and will not, repair a flawed business plan; they sell their stock to protect themselves. They will then sell short more stock to profit from the collapse they think is coming. Their sales may alert others to look for problems and the stock may start it's decline.

BFU believes that as the netcohort society takes hold -- our traditional, inefficient, expensive, snobbish, government supported and regulated universities must change. They have a flawed business plan for the information society.

That finance rule of thumb for investor's?

If something is going to fall - it should to be pushed.


I also recommend that you visit the excellent blog of Mark Cuban - Blog Maverick. Mark has shown excellent timing in sports and in business Mark openly shares some great insights in his posts. In this entry he hits at least two indicators of a weak stock, some indicators are obvious - others you may have to think about.

IF you have the ability and the will to follow the speculation rule - cut losses short and let profit run - a few short sales can reduce your overall portfolio risk. This was of course the original idea behind hedge funds.

Stocks will rise and fall for many reasons - the most damaging to the stock will probably be company specific.

Any time a stock falls it could be a warning sign to take a close look at the sector and the entire market.


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