tanking on a good day, page-23

Vin Came across this.

You have the choice of hanging on, buying more or selling up.

The best way to make your choice is to ignore the share price for the time being (yes, I know it’s easier said than done), and focus on the underlying business.

Think of yourself as a venture capitalist examining a company for the first time. Does the company pique your interest? Does it sell a good or service that's in high demand? Does the company have many competitors, and if so, is it a market leader? Does it have high or low operating costs? In short, do you back this company with your hard-earned cash to boost earnings over the long term?

Earnings growth is a major factor in determining stock prices. Companies with strong future earnings forecasts typically perform better than companies with lacklustre projections. Check out analysts' yearly earnings forecasts for the stocks that you currently own (use forecasted growth figures rather than historical in these uncertain times, and note that many forecasts will be updated due to the change in market conditions).

It can't be denied that the global credit crisis is a serious factor driving share prices right now. You must ask yourself this question: in a landscape of tightening credit conditions, plummeting consumer confidence and rising unemployment, how will your company fare?

Clearly, the industry that the company operates in will affect how it will cope in this new landscape.

Cyclical stocks are more likely to be badly impacted by softening economic conditions than defensive stocks. Companies that rely on borrowings will be worse affected than companies that are cashed up.

A good debt gauge is the debt/equity ratio, which compares a company's total debt with shareholders equity. Basically, the higher the ratio, the higher the debt levels of the company.

In this environment, stocks with higher than average debt levels could be pummelled by the market so watch out (ABC Learning Centres is a good example of a stock that suffered at the hands of its shareholders from holding too much debt).

It could be said that smaller companies are less well-equipped to face economic and market turmoil than larger companies, so if your portfolio is heavily weighted towards smaller companies, then you might consider re-weighting it.

Also watch out for weakness in a stock's industry group. If leading stocks in an industry fall sharply, it's likely that other stocks in the group will follow the leader.

In sum, don't view the share price as the determining factor for whether to hold or ditch that stock, but rather the quality of its business. Chances are, if the business is solid, the share price will rebound.

And if you strongly believe in the quality of the company, and all of its fundamentals stack up, then buying in now at a lower price could boost profits over the long term.

Your opinion Welcomed