It generally pays to wait until you are fairly sure that all of the bad news is out. Usually this means waiting until there is at least a little good news coming from the company, such as losses narrowing, cash flow turning positive or backlogs growing. You may miss the absolute bottom, but at least you will be less likely to get an unpleasant surprise. In these situations, one item of bad news causes a loss of confidence in the company which leads to more bad news which causes someone else to lose faith in the company, and so on. At each stage in the downward spiral, some investors figure that the stock has hit bottom and they jump in just before the stock drops still further.
Death spirals are particularly common in the retailing industry.
In a recent example, Ames Department Stores had difficulty in assimilating the new stores that it acquired from another retail chain. These problems caused the company's bankers to become nervous about extending more credit. Suppliers became edgy, and when computer problems delayed some payments, many suppliers refused to ship merchandise. Without new merchandise on the shelves, cash flow dropped, the lenders refused to extend credit, more suppliers refused to ship goods, and Ames was forced to file for Chapter 11. Another type of news to be wary of is any indication of fraud or misstatement of financial reports.