For me, avoiding big losses is the key to running a successful long-term share portfolio – even more so than picking winning shares. This is because big losses are hard to recover from. A share that halves in price has to double just to get back to where you were. It would be good if there was a way of staying away from losers in the first place. This is not always possible, but there are frequently warning signs of trouble ahead that often get ignored. Being able to spot potential red flags and working out what they mean is therefore a valuable part of the investor’s toolkit.
Hindsight is a wonderful thing, but if we look at some of the big share price blow-ups that we have seen then I think it's fair to say that, in many cases, the signs of trouble were already well entrenched. I am going to look at some recent examples and show you that the red flags were already waving all over them.
If you want to read more about spotting signs of trouble then I thoroughly recommend picking up a copy of Tim Steer’s excellent book The Signs Were There.