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Chapter 1. Sages and Charlatans: Avoidin... > Red Flag 8: If You See Major Funds A...

Red Flag 8: If You See Major Funds Are Shunning a Stock, There’s Usually Good Reason

Always check who the big shareholders are in a company in which you are thinking of investing, and compare the list to those for its competitors in the industry. If, for example, you find that none of the major telecom funds are invested in a telecommunications company, that is a warning sign. The chances that you have found a gem that they haven’t already scrutinized and discarded as a fake are slim. Providence Capital President Herbert Denton said the absence of big funds is one of the key signs he uses to understand whether a company has problems. For example, mid-sized drug maker ICN Pharmaceuticals Inc. had little overlap in shareholdings with other similar-sized companies in the industry. “The folks that know the industry are saying ’not this one,’” said Denton.


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