Introducing Red Flag Alerts
Making money is important, but so is avoiding losing it
Welcome to Red Flag Alerts, a rolling roster of stocks to avoid.
When I did short-biased research, the greatest compliment my firm would get would be from investors who said we kept them out of a stock... or better yet, kept them from buying more before it tumbled.
That's the idea behind my Red Flag Alerts, which I informally launched in May 2023 as part of Herb on the Street.
Regardless of the broader market, there is no shortage of companies whose financials and/or fundamentals are signaling red flags...
Numbers Speak for Themselves
Among the most recent companies I red-flagged, as of Monday, August 12…
Symbotic SYM 0.00%↑ , red-flagged in May, is down 55%.
Lululemon LULU 0.00%↑, April, down 34%.
Savers Value Village SVV 0.00%↑ , red flagged in March, down 58%.
Marathon Digital MARA 0.00%↑, January, down 42%.
They can be volatile, of course – and a few have moved around. But most of those on the full list below (updated) are still in the red… and have lagged the market.
Where Ideas Come From
There is no magic in where my ideas come from. Some are from screens developed by my friends at Kailash Concepts, when I’m in a screening kind of mood…
Some come from friends and collaborators, including Katherine Spurlock, a former short-seller (and onetime source of mine) who now specializes in deep research and at times collaborates with me.
And thanks to the network I’ve developed over the years, others come from short-sellers. (Yes, contrary to popular belief, there are still a few left.)
And here’s a little secret: My FAVORITES come from investors who have sold stocks they love – and then shorted them – after the story has changed. In my experience, those should be a triple-red flag! (I’m talking about you, Lululemon.)
High Rejection Rate
My idea rejection rate is high. I know what I’m looking for… and if it’s overly complicated, I’m likely to leave it to others.
I don’t promise any number of ideas in any given year because doing so is silly… and can result in ideas for the sake of ideas to meet a made-up quota.
As a result, I have no publishing schedule. But as you can see from the “Stocks to Avoid” table above – and my archives – I’m rarely at a shortage of good ideas, just time.
My goal, as I write in my FAQs, is not to cross the line between providing value and becoming noise.
Final point: I value my archives as much as recently published pieces, which is why I keep them under lock-and-key. That said, here are two samples:
Quick Backgrounder
The concept of Red Flag Alerts is straightforward: With thousands of stocks to choose from, unless you’re an active trader, why pick these?
Or as Matt Malgari at Kailash Concepts wrote a bit more bluntly – in bold – in a report on highly leveraged companies that don't earn enough to cover their interest payments...
This just isn't complicated. If you own these fragile firms, we encourage you to ask yourself "WHY?"
That's because the best way to make money is to avoid losing it, and stock avoidance is as important as stock selection.
That's a very basic and simple concept that more often than not gets lost in translation...
Like Buying Insurance
I started Red Flag Alerts for fun while writing a mostly long-only newsletter, in part because I missed the skeptical part of what I’ve done for decades.
But I also strongly believe knowing what can go wrong is as important as knowing what can go right.
That’s why I think something like Red Flag Alerts should be part of every investor’s bag of tricks. It’s like insurance: Nobody likes it but they’re glad they have it if they need it. If nothing else, it might make you double-up on your own research… and you might gain even more conviction – or have a view that whatever issues I raise will be meaningless years down the road.
And for Those Who Short Stocks…
Red Flag Alerts has also proven to provide good ideas for anybody who shorts stocks. The journalist in me still likes finding ideas everybody isn’t talking about. Or at least getting there before everybody else… or putting a new spin on an old story that has been forgotten.
After more than a mere few decades of doing this, I kind of know it when I see it. Or at least like to think I do.
Famous last words, but it’s always a good place to start.
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I do not have a position in any stock mentioned here.
I can be reached at herb@herbgreenberg.com.