With reporting season underway some investors are already feeling the pain of owning a stock which fails to impress, while other investors such as those owning Domino's Pizza Enterprises Ltd. (ASX: DMP) are feeling the joy of holding a stock which rallies 13% after reporting a strong set of results.
For investors wishing to experience more of the joy of owning stocks that go up rather than the pain of stocks which fall, here are four tips.
- Be wary of owning high priced growth stocks if you're not certain they will deliver. Investors in Domino's own one of the most expensive stocks in the S&P/ASX 100 Index (Index: ^AXTO) (ASX: XTO) this has turned out well for them given the market reacted so positively to the result. However a stock on a sky high multiple such as this is at serious risk if it disappoints.
- Be wary of discretionary retailers. Investors in JB Hi-Fi Limited (ASX: JBH) are down close to 10% since the electronics retailer released its full year results. While there is certainly a case for selectively buying some beaten-up retail stocks, it would appear that the sector as a whole is more prone to selling pressure than buying momentum given the near term economic outlook.
- Beware of stocks with substantial short interest. Investors who short sell have a lot to lose – this generally makes short sellers incredibly careful and thorough in their research of a candidate. While that certainly doesn't mean that 'going long' the stock must be avoided, it is pause for thought as to why you are right and the short seller wrong.
- Avoid over leveraged and stretched balance sheets. It's never a good time to invest in companies with too much debt.
