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The Motley Fool

Ask the Fool

Curbs and Breakers

Q. Please explain “trading curbs.” — H.S., New Orleans

A. Trading curbs (also known as “circuit breakers” or “collars”) are rules that restrict trading in the stock market in times of extreme volatility. When triggered, they can suspend trading for a specified period of time or halt trading for the rest of the day. The idea is that such breaks will stop or pause whatever trading frenzy or panic is underway, giving investors a chance to assess what’s going on and make decisions in a calmer and more informed fashion.

Trading curbs have been refined over time; the most recent rules halt market trading for 15 minutes if the S&P 500 drops more than 7 percent from its previous day’s close — unless this happens at or after 3:25 p.m., in which case the markets will remain open until their regular 4 p.m. closing time. If the S&P 500 falls 20 percent below its previous day’s close, trading is halted for the rest of the day. “Limit up, limit down” breakers, meanwhile, are designed to briefly restrict trading in a particular stock (or exchange-traded fund) within a defined band when triggered.

Q. Can I track my portfolio online without a brokerage account? — G.A., Rutland, Vermont

A. Yes. Many sites, such as Yahoo! Finance and AOL.com, offer portfolio tracking, as do many brokerages. You can enter the various stocks and funds you own and the prices at which you bought them — and then click in any time to see the latest value of each holding, as well as of your overall portfolio. You can even create a separate portfolio for stocks on your watch list to help you keep an eye on them.

Fool’s School

Signs of Trouble

We spend a lot of time learning to identify great investments, but what about the stinkers? This review of red flags can help you spot, and steer clear of, bad investments.

¯ A very low price: If a stock is priced below about $5 per share, it’s generally a penny stock, known for volatility and often easily manipulated by scammers. A solid company with a stock price that low is likely to be experiencing a rough patch.

¯ Over-the-top promotion: If you’re seeing lots of capital letters and exclamation marks and you’re being urged to act quickly, beware. Bad investments are often pitched with language such as “amazing breakthrough, “miracle cures” and “HUGE profits!”

¯ Strangely specific claims about future returns: Examples include a “potential 3,227 percent gain” or an expected deal that “will soon push the stock above $20!” A newsletter might claim that its recommendation should rise “more than 40 percent in 30 days.”

¯ An unprofessional company website: Expect and demand clear, honest communication from companies you invest in. Their websites should include their audited financial statements, too. If a company’s website features poor grammar and misspellings and pages that are “under construction” or absent, that’s a red flag.

If these companies being promoted were really such terrific opportunities, their shares would be greedily snapped up by savvy investors instead of being hawked to whoever will buy them. These so-called bargains that sound too good to be true are generally bad news.

Remember, too, that a low share price doesn’t mean a stock is a good value. A 50-cent stock can soon become a 5-cent one (and often does), while a $200 stock can grow to $400 — and keep growing.

When researching possible investments, seek companies with growing sales and earnings, little debt, ample cash and sustainable competitive advantages. Don’t just fall for an exciting story. Demand proven profits, not just possibilities.

My Dumbest

Investment

Robotic Competition

My dumbest investment was buying 75 shares of a small company at $4 per share and then buying more when it fell to $3, all based on excitement over a Food and Drug Administration (FDA) approval. Well, the company’s recent share price was nearly where it was before that approval. — S., online

The Fool responds: This small company is developing robotic surgical equipment, and though that’s indeed a promising and growing field, a closer look at the business would have revealed some concerns. For starters, it has posted only losses in the last decade.

How has it stayed afloat for that period? Well, a look at its financial reports over time shows its total shares outstanding rising from roughly 13 million in 2013 to more than 200 million recently. That’s called dilution — when a company issues more shares, reducing the value of each share. (Imagine a pizza that was cut into eight pieces being cut into 80 pieces instead — each one would be a lot smaller.)

The company did get FDA approval for one of its surgical systems, but it will compete against Intuitive Surgical, which installed 231 of its systems in the third quarter, compared to the smaller company’s four installations. Intuitive Surgical has long been profitable, too, with billions in cash and equivalents.

There’s hope for your shares if the company can sell more and more systems and generate profits. But it’s risky.

The Motley

Fool Take

Calling Verizon

Leading telecommunications company Verizon Communications (NYSE: VZ), overlooked by many investors, has been sporting an attractive stock price. The company has 116.9 million wireless subscribers, and considering how addicted most of us are to our phones, that’s a large and stable business to be in. Over the last five years, Verizon’s free cash flow has been solidly positive.

Verizon has been laying the expensive framework for its 5G network, which has launched in limited markets. That’s great for long-term investors, because 5G should enable Verizon to increase prices on premium customers, while driving new wireless technologies, such as self-driving cars and virtual reality, that will increase the number of wireless connections customers have. The first 5G product to hit the market is 5G Home, a home wireless product that competes with broadband. Being able to offer home broadband wirelessly will expand Verizon’s market potential and should drive incremental growth. That’s just the beginning of 5G innovations.

The company does face intensifying competition, such as from T-Mobile, along with rising costs. It’s carrying more than $100 billion of debt, too. But its stock price reflects that, with its recent single-digit price-to-earnings (P/E) ratio and its dividend recently yielding 4.2 percent. Overall, Verizon appears to be a solid value stock with a lot of long-term growth potential. (The Motley Fool has recommended Verizon.)

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.

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