Last month I outlined six questions designed to help investors avoid potential yield traps. This month I’ll cover four more.
These four questions, plus the six from last month, look for a variety of warning signs including:
- bad management
- high costs
- dangerously large or risky projects
- excessive acquisitions
- highly cyclical markets and
- markets that are likely to decline over the next decade or more
Although it can be difficult to define exactly what bad management is, for example, investigating these issues and drawing conclusions is still a very worthwhile activity.
That’s because it can help you build up a nicely rounded picture of a company, far beyond what you’ll get from just looking at financial statements.
You can read the full article below, along with the rest of the April issue of Master Investor magazine where it was originally published:
How to avoid yield traps – Part 2
- Read the article (PDF)
- Read the magazine (PDF)
- Visit the Master Investor magazine archive
- Visit MasterInvestor.co.uk
Note: I should tip my hat towards Stuart Slatter and David Lovett, who wrote Corporate Turnaround, an excellent book from which I borrowed most of these ideas.