Just how telling are red flags?
The term “red flags” is synonymous with “bad things are going to happen,” and, for investors, they are a sign that you should likely stay away from that investment. However, all this talk of red flags being able to predict that a company is going to do poorly makes you wonder, does it work?
To start, let’s take the red flag score from the “Synopsis with Red Flags” tear sheet which contains 13 different comprehensive red flags. I apologize for the size of the following photo.
Without getting into too much detail, in the event you can’t read the photo clearly, the score looks for the following thirteen items –
Have you had the experience of writing a screen, and having it get fantastic performance — except for the last two years? Like this one.
Zooming out we see outperformance, except in the last two years. Maddening!