Module 8 ยท Building a Portfolio and Managing Risk
Look for warning signs of poor governance before they become losses.
Governance is how a company is run and controlled. Poor governance can destroy shareholder value even in a profitable business.
Red flags include heavy promoter pledging, complex related-party transactions, frequent auditor changes, opaque disclosures and aggressive accounting.
If a company's numbers do not match its cash flow, or management avoids questions, treat it as a serious warning. When in doubt, walk away.
Example: General principle
Companies with repeated governance controversies often show a pattern: rising debt, weak cash flow, and related-party deals. Learning to spot these patterns protects you.
Which is a governance red flag?
Why is 'when in doubt, walk away' a reasonable rule for individual investors?