Buying a stock without understanding it is not investing. It is gambling.

  • 1. What does the company actually do? If you cannot explain it in one sentence, keep researching.
  • 2. Is it profitable? Consistent profits over 5 plus years is a good sign.
  • 3. Is it growing? Revenue and earnings should grow year over year.
  • 4. How much debt does it carry? High debt makes companies fragile in downturns.
  • 5. Is the price reasonable? Check the P/E ratio and compare to industry peers.

The Warren Buffett test: would you be comfortable owning this company if the stock market closed for 10 years?

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