US stocks are down - the biggest point drop yet for the first trading day of the year, and its largest percentage decline since 1983 - oil has hit a record and gold is getting there. What a start to the year!

The bad news is going to keep coming so it's time to get smarter about investments.

Here are three tips from Dan Caplinger at Motley Fool. First, don't just bet on one market. Investment, like manure, needs to be spread around. Look at international stocks, mid-caps and a variety of sectors. Secondly, know your risk tolerance. If you are uncomfortable about the price dropping, get out before it gets worse. And finally, make sure you have an exit strategy.

Based on my experience of running businesses and more years than I care to remember writing about markets, I am always warning people to watch out for danger signals. It does require you to read the profit and loss account and the balance sheet.

Have there been back-to-back loans before the balance date? This is usually a form of window dressing designed to hide losses in the accounts.
Do companies in the group have regular financial intercourse? Watch out for these related party transactions, particularly if the company is making money out of it. It's usually a sign of disaster ahead.
What's the exposure to joint ventures?This is very important, particularly if those exposures are large enough to send the company to the cleaners.
Are the assets really worth what the company says?The best test for asset value is just one question: how much can you sell it for? Pretty simple really and if it's zero, the answer is pretty clear. Unfortunately, many investors have been blinded by claims that companies make to the market. There are none so blind as those who won't see.
Is the company saying the same thing as the market?If the company says that everything is good and profitable, and if the market is saying something else (i.e share price is sliding), go with the market.
When you look at the liabilities, are there signs of debt engineering?This is usually designed to artificially reduce liabilities. I have seen it done several ways, often as book entries showing borrowings being discharged through special vehicles. Not a good look.
In the extraordinary items, watch out for the three-letter word "net" It pays to keep an eye out for this. When you see it, it's usually a sign that disaster is around the corner and that the real figure is much bigger.
Do the figures in the cash flow look anything like the sales numbers in the profit and loss account?If there is a difference of more than 10 per cent - anything less can usually be explained as a timing difference -the company is probably doing things like front-end loading by counting sales revenue that won't be received until after the balance date.
Loyalty is for football teams, not stocks.Self explanatory really. No point hanging on to a stock if things are looking bleak. And there is definitely no point looking after a particular investment if it's not going to look after you.