There are always some stocks, which illusively scale lofty heights in a given time period. However, the good show doesn’t last for these overblown toxic stocks as their current price is not justified by their fundamental strength.

Toxic companies are usually characterized by huge debt loads and are vulnerable to external shocks. Accurately identifying such bloated stocks and getting rid of them at the right time can protect your portfolio.

Overpricing of these toxic stocks can be attributed to either an irrational enthusiasm surrounding them or some serious fundamental drawbacks. If you own such bubble stocks for an inordinate period of time, you are bound to see a massive erosion of wealth.

However, if you can precisely spot such toxic stocks, you may gain by resorting to an investing strategy called short selling. This strategy allows one to sell a stock first and then buy it when the price falls.

While short selling excels in bear markets, it typically loses money in bull markets.

So, just like identifying stocks with growth potential, pinpointing toxic stocks and offloading them at the right time is crucial to guard one’s portfolio from big loss