1. Rule number one is for risk-averse investors: Steer clear of companies with poor earnings visibility, or volatile earnings. Some sectors are less profit-warning prone than others. For example, water companies, with their strong and predictable earnings flow, rarely have to warn that profits will miss expectations.
2. Decide in advance if you are the get-out-immediately or the wait-and-see type. It's important to know because you may be faced with only a small window of opportunity to sell the shares before the price slides further. Usually it’s best to sell as quickly as you can.
3. Always assume that there will be more bad news to come. According to fund manager Mark Westwood, 75 per cent of companies that issue a profit warning go on to issue at least one more. So if you plan to sell, you should do so quickly, and if you decide to stick, be prepared for a long haul to recovery.