Red-Hot Stocks Can Bring Permanent Losses

As important as it is to be cautious and own only the cheapest stocks that have strong balance sheets in times of market concern or caution, it is equally if not more important to avoid dangerous stocks.

When markets turn, the stocks that are overvalued or have poor businesses will lead the way lower, and this can often lead to a permanent loss of capital. When the market darlings roll over and crack, there is usually a contraction of the earnings multiple that can be permanent, and it can take years or even decades for the shares to regain their former highs. Ask any tech stock investors from the late 1990s who owned a stock that plunged by 70% or 80% because of a multiple contraction, and they can tell you the difference between a permanent and a quotation loss of capital....612 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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