This is obvious, but often forgotten. No matter how far a stock has fallen, the downside is still 100%.

Some things that make that downside more likely to materialize:

- high financial leverage
- high operating leverage
- negative (or potential for) cash flow
- poor governance
- high risk of obsolescence
- no competitive advantage with strong competition

So if you are going to try to invest in beaten-down stocks, remember Charlie Mungers idea to always invert and only select among those that dont have many of the above characteristics (or make your peace with the -100% possibility)