Showing posts with label bad stocks. Show all posts
Showing posts with label bad stocks. Show all posts

Tuesday 11 April 2017

Prudent Reserves

When something happens that causes an asset to lose value, it is written off.

  • For example, if some stock (asset) is stolen, the value of the stock in the Balance Sheet is reduced.

The same thing must happen if a prudent view is that an asset has lost some of its value.

  • For example, if some of the stock is obsolete and unlikely to sell for full value.
  • Normally, the Balance Sheet will just show the reduced value, which will be explained with notes.


Stock reserve

The creation of a stock reserve reduces the profit.

  • If it is subsequently found that the reserve was not necessary, the asset is restored to its full value and the profit is correspondingly increased in a later period.


Bad debt reserve

It is often necessary to create a bad debt reserve to cover money that may not be collectable from customers.

  • This bad debt reserve reduces the profit.
  • For example, loan loss reserve or provision by the banks.




Sunday 15 November 2009

Avoiding Bad Stock

Avoiding Bad Stock
Most investors often fall in the simple trap of believing someone who tells them that a particular stock represents the next winning bet. However, you should be very cautious when examining the possibility of investing in such a "promising" stock.

1.  An example of a great looking stock is the one that looks absolutely healthy from the outside, but it is usually hollow and unprofitable in its core. Most investors that are attracted by these shiny stocks eventually find out that the companies that have issued them are not profitable and financially sustainable. These stocks are easily forgotten after a short period of time.

2.  Another example of a bad stock is the one that is tied to the cycles of the business. This means that its price is very vulnerable to the changing cycles of the market. If you purchase the stock at a time when its price was high (due to high demand), you will soon end up with a worthless stock because of the changed cycle of the market.

3.  Sometimes a stock may be really very profitable and a viable investment. However, you have entered the game too late at a point where the market has increased the price of the stock to a high level. No matter how good the stock may be if you buy high you will soon feel the losses.

Making the Right Investment Decision
In order to make a successful investment decision you should first of all select a company that has a reliable business. Additionally, the company should prove that it has good prospects for success in terms of growth.

Second, you should be able to find a price that coincides with the current state of the company and its future position. You should make a reasonable evaluation in order to avoid paying more than the company is really worth.

In order to determine the current and future value of the company's stock, you can refer to one or several of the many formulas for this purpose. However, you should not fully rely on them and try to develop your common sense feelings in order to pick the stocks that best meet your financial goals.

When you start the stock selection process take your time. Don't be too impatient and if a stock doesn't look very viable don't invest in it. There are plenty of other opportunities in which you can invest your hard-earned money. Analyze all the alternative investments and select the one that best meets your needs and goals.

Remember that you should try to avoid the described above bad stocks, which only look profitable but are financially hollow. Additionally, the best way not to lose your money is to invest reasonably and cautiously by analyzing every opportunity before jumping into it.

http://www.stock-market-investors.com/stock-market-advices-and-tips/avoiding-bad-stock.html