IA Cockroach Theory

What Does Cockroach Theory Mean?

A market theory that suggests that when a company reveals bad news to the public, there may be many more related negative events that have yet to be revealed. The term comes from the common belief that seeing one cockroach is usually evidence that there are many more that remain hidden

Are one- time charges bugging you ?

For example:

study noted that in 2001 , companies in the standard & poor's 500 index wrote off items totaling $165 billion _ more than in the prior five years combined.

A study by multex.com and the wall street journal indicated that analysts should not ignore these charges.

The study documented that companies reporting the largest unusual charges had more negative stock price performance following the charge, compared to companies with smaller charges.

some analysts use these charges to weed out stock that may be headed for all fall.