If an investor has been working to increase their portfolio over the past few years they have likely been put through the proverbial ringer. Investments have been increasing of late, but they may yet find a “double dip” drop in the not so distant future. If the past decline was missed and value lost, what might indicate a fall in value going forward for an individual stock? Knowing the answer is speculation, however, there are a few signs to keep an eye out for.
The idea is to look at time series data. A stock is like an ice core found in Greenland. If one were to drill an ice core, it would show what has happened over eons of time. What happened when and what were the conditions at that point in time. If only a few periods are looked at, one would only get a small idea of a trend. As far as investing goes, this past year or so would only be a small snapshot of how that particular company is positioned. Looking at a longer period will show how that company is positioned in good periods and bad. If the company shows solid growth over time, only to take a hit in bad times, it will likely grow after that bad period has come and gone.
However, going about this process requires drilling several cores for data in several areas. First, drill for time series in areas where past and future may be found. These areas might include: cost per unit of sale, administrative costs, head count, borrowing, dividend history, capital investment, exposure to imports/exports, dollar exposure, exchange rates with international exposure, executive in-side sales of stock and the same information for competitors. Next, look at stock price over time. Remember the technical meaning of “mean”? Although not a strict definition this would be – just as much above as below. Although there are reasons, found in your drilling, for a stock to stay below the “mean”, a stock will likely stay near the “mean.” If your drilling indicates the company is “stable”, but above or below the mean, it may be ready for a change in either direction.