Warning Signs For Your Investment

These are warning indicators that your investment could start losing some value. They should put you on the alert to start evaluating your investment’s financial position and future potential.

Equity

1) Fundamental signs of weakness

The financial indicators used to identify a declining stock are the same ones used to identify an improving stock but you turn the figures upside down (the indicators include earnings growth, sales and profit margins).

2) Weakness in the industry

Pay attention when most of the best performing stocks in an industry fall sharply on heavy volume and are unable to recover as your investment could follow suit. Also, if the market has been rallying over several days and your stock hasn’t come to life, you must beware.

3) Signs of institutional selling

Are fund managers consistently selling that stock? They may know something that you’re not aware of. In any case, constant selling pressure will drive down the price of your share.

Unit Trust Funds

1) The fund has changed its style or objective

If you bought a small-cap fund to diversify your portfolio but notice that it’s investing in large blue-chip companies, then consider selling it. Keep in mind your original reason for selecting the fund and its role in your portfolio.

2) The fund is underperforming

This reason for selling, even tough valid in certain conditions, is where most investors make a mistake. If returns have been poor over a period of less than a year, your unit trust may simply be experiencing some short term fluctuations.

However, if you have noticed significantly poor performance after one year, it may be time to cut your losses. Remember to compare the fund’s performance with a suitable benchmark or similar funds.

3) The fund manager has changed

A change in fund managers in itself isn’t enough of a reason to sell a fund on a short term basis. However, take note of the new manager, especially when the fund is an actively managed one.

4) The fund size has changed

In some situations, size does matter. Take a small-cap fund, a successful one can attract a lot of attention and new investors, resulting in an increase in its fund size.