Faulty Product Testing Sinks Able Laboratories

On May 19, 2005 the stock of Able Laboratories (ABRX), a generic drug maker, collapsed after the company announced that it had temporarily suspended shipments of its products because of improper testing procedures. Chairman and Chief Executive Dhananjay G. Wadekar resigned two hours after the announcement. ABRX closed at $6.26 down 74.58 percent from the previous $24.63 close.

Then on Monday May 23 the company suspended manufacturing operations and recalled the rest of its products. The stock closed at $5.05.

Can you imagine being a stockholder and learn that your shares had just lost three quarters of their value in one day. And what if much of your portfolio consisted of the stock that had crashed. You would be all but wiped out.

The only defense from such a disaster is to keep a diversified portfolio that includes many investments so that no one or two investments makes up a large proportion of your total holdings. That way if one or two stocks go bad, you may not be happy but your portfolio remains intact.