Tell a Friend about this Special Report

Hannah Slater

Wouldn’t it be nice if there was a simple checklist to tell you when it was time to drop a stock from your portfolio?

Well there just might be something pretty close.

It's really hard to sell stocks. Especially the ones you've owned for a while. They become like old friends and you never want to say goodbye. No matter how many time they eat everything in your refrigerator.

Hey... They're just stocks. Not even pieces of paper anymore. Just bits and bytes of electromagnetic energy on a computer probably out in Utah somewhere.

When it's time to dump a stock, push the button and get rid of it.

But, unfortunately for a lot of investors selling a stock becomes an emotional issue instead of a logical, pragmatic, analytical decision. People make that sell decision with their heart instead of their heads.

I know a guy who has held on to stocks in his portfolio longer than he held on to his last two wives. And a few of those stocks cost him more than his alimony payments.

When it’s time to sell and you know you should do let it go, it’s just hard to actually pull the trigger.

This cuts two ways… If the stock has been falling then people want to hold on to give it a chance to come back up so they don’t need to admit a loss. If the stock is flat or up, people want to hold on in hopes that it will continue up.

But investors have to remind themselves the only way to actually make money on stocks is to sell them. Sometimes the smartest thing is to sell a bad stock so you can buy a better one and ride that new stock up for a while.

Sort of like jumping from a slow train or even one going in the wrong direction so you can get on a fast moving train. Hopefully an express that will get you where you want to be even faster.

The key is to get out of those stocks before they drop further and to hold on to the ones that truly have promise. If you are reluctant to sell, then you need to look into the mirror and ask yourself if this an emotional decision or should you dump the stock right now?

But how do you know when to let those stocks go?

The 18 Warning Signs That Tell You When To Dump A Stock

Now this is not just some checklist you can run through in 18 seconds. You will also find convenient links to free Internet investment information resources to get the answers you need to determine if your stock meets the checklist criterion.

If you are reading this article on a web page you can just click on the link to get to the resource then in many cases enter the stock symbol you are looking for.

So as you go through these warning signs check off the tests that your stock does not pass. By breaking down the way you look at your stock into a list like this you should be able to take the emotion out of the decision.

If you enter your stock symbol below and click on the [OK] button for many of the items below you will not need to enter the stock symbol again.

Here are eighteen warning signs to watch for: Enter a Symbol above

1. When a stock's price drops 10% to 15% from a recent high.

CLICK HERE for a quick chart of your stock. The last price and 52 week price range are shown above the chart. Look at the stocks recent (30 to 60 day high) and compare it with the current price.

2. If some problem arises in the industry or the company.

Has the company lost some big patent case? Have a changing economy impacted the company’s sales? Have investors decided to rotate out of the stock’s sector? Most of these will be shown in past news stories or in the one year stock chart. A steady or sharp drift down usually spells trouble.

CLICK HERE for that stock chart again. Then CLICK HERE to find other stocks in the sector. Now enter those stock symbols in the chart and see if those other stock show a similar chart pattern.

3. If the stock price has stagnated. Why not sell it and buy something else that might shoot up?

CLICK HERE for that stock chart again. If that price is flat you know what you might have to do.

4. The stock's P/E is higher than others in the same industry... And you can't explain why it's out of sync.

CLICK HERE to find other stocks in the sector. Scroll down the table to find your stock and look at the P/E (price/earnings ratio). You can look at the top two lines of the table to compare that value with the Sector and the Industry. If your stock’s P/E is significantly higher, there better be a good reason or your stock might be on the way down.

5. In general, earnings are falling for the company or the industry.

CLICK HERE to bring up that list of similar stocks. Find the line for your company and look at the top two lines for the Quarterly revenue Growth and Quarterly Earnings. If your company is ahead of the Sector and/or Industry great. If not, too bad. And if the sector/industry growth rates are below 10% or 12% that could be a sign of trouble.

6. The company has cut its dividend.

Dividend stocks are especially hard to get rid of because you get a nice periodic cash gift from the company. But if the company has dropped that dividend even a few pennies then it may be time to drop that company.

CLICK HERE for a list of the recent dividends paid by the company. When the page appears scroll down to the dividends section.

Be sure you check for stock splits which are shown in the table titled “Splits” above the “Dividends” table. It may appear that a company has reduced it’s dividends but if they did a stock split the dividend rate per share will go down but the overall dividend yield will be the same of go up.

7. A key manager leaves and the new manager seems lost. (i.e. Can't clearly articulate the vision for company growth and profitability, reluctant to make needed changes, from a totally different industry)

CLICK HERE for some recent news on the company. Scan through the stories and see what you can learn.

8. The stock price falls below $10 a share.

In general stocks that are below $10 a share tend to drop faster. Especially if they were at $100 a share a year ago. Those sub-ten-dollar stocks might look nice because you can pile on the shares for a lower investments but stick with the higher priced stocks if you can.

9. The company's sales margins and return on equity look bad compared to other similar companies.

CLICK HERE for these important ratios. Then key in a few symbols from other companies in the sector. Compare them and see what you learn.

10. The company is about to embark on a large `boneheaded` acquisition. i.e. AOL acquires Time Warner.

CLICK HERE for some news stories. This news page will allow you to step back in time and scan through some of the older news stories. Look through those for moves the company has announced when you might not have been looking. Scroll to the bottom of the list of stories then click on the “Next 25” link.

11. The company itself has been acquired and the acquisition makes no sense.

CLICK HERE for some of those recent news stories again.

12. You discovered the stock sometime ago and enjoyed a nice price run-up but now the stock has been discovered by the world. Now where will new buyers come from to drive up the price?

CLICK HERE for another look at that chart.

13. Key managers in the company start to sell a huge amount of stock. Or they start to buy puts to protect their stock if the price falls.

CLICK HERE for a look at if the insider have been buying or selling the stock.

14. When the company's sales are on the decline and key management tries to revise their bonus plan. Fire the bums or sell the stock.

The best place to determine this is in that supplement to the annual report. This will usually show things they expect the shareholders to vote on. My antennas always go up when management wants to revise their bonus plan after a year that the company has underperformed.

CLICK HERE to get started on that exploration if you threw out that annual report.

15. Declining earnings growth. The company's earnings growth has drastically slowed from the previous year. An EPSG% less than 20%.

CLICK HERE for a look at those earning ratios.

16. The company continues to or has started to burn cash. When a company uses more cash than it makes, it's just a matter of time before the ACE BOARDUP trucks arrive and the company shuts down.

CLICK HERE for a look at the company’s balance sheet. Take a look at how the numbers on the “Cash & Equivalents” line changes from year to year. It’s hard to fake cash in the bank.

17. The company is just too big sustain stellar growth...once a company explodes past the ten billion sales mark, it's hard to grow at the same pace it did in the pre-ten billion dollar years. It might be time to find another rising star unless it is pretty obvious the company can hit at 15% EPSG. (i.e IBM, HP, PFE)

CLICK HERE for a look at the company’s income statements. It’s nice to see big increasing sales numbers but just how far can the company go. If you are looking for stock price growth the biggest companies may not be able to give that to you. And if their sales fall short of last year’s (or last quarter’s) down goes the stock.

18. A boneheaded new product announcement. i.e A leading personal computer operating system company decides to make a foray into operating systems for copy machines.

CLICK HERE for another look at the recent news. Look for those significant new product announcement that just don’t make sense for the company. Also a large number of new product announcements could be a danger sign.

If your stock has more than a few of these warning signs, then you need to ask yourself why you're holding onto the shares?

At those cocktail parties, people always tell the story about the stock they held on to and came back from the ashes. But for every stock that comes back there are so many that kept falling. People just don’t talk about the ones that lose them money.

Hopefully if you follow this checklist you shouldn’t have many big looses to worry about. But you might have a few stories about stocks you sold before a big drop. Those stories can be as good as the big winners.

Don’t forget… You can always sell the stock now, watch it drop then buy it back at a lower price.