The five signs of fudge when picking stocks

Knowing which shares to avoid is almost as important as being able to pick potentially profitable investments. Matthew Partridge explains the five “red flags”.

Knowing which shares to avoid is almost as important as being able to pick potentially profitable investments. Here are five "red flags" to watch out for.

1. Unnecessarily complicated accounts: Some industries are more complicated than others. But if a non-financial firm has many subsidiaries, and engages in complicated financial transactions, watch out. The classic example is Enron, which traded energy derivatives and set up subsidiaries, called "special purpose entities", to inflate profits and hide liabilities, before collapsing in the early 2000s. In short, if you can't follow how a company makes its money, don't invest.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri