There are four questions that you should ask yourself before you purchase a stock:

• 1.) Does the stock represent a company that has a durable competitive advantage?
• 2.) Do you understand the product?
• 3.) Do you think the company will be around for the next 20 years?
• 4.) Does the company operate only within its realm of expertise?

One of the questions you want to ask yourself before you buy a stock is whether the company have a competitive advantage? By a durable competitive advantage, I mean that the company has a product or service that is unique to and inherent in that product or service. That is to say that the uniqueness of the company's product is not invested in a few talented or smart people in the company but that that uniqueness is within the product or service itself. An example might be Popeye's Chicken. When it is made right, it has a unique taste. And it is for that unique taste, they people eat at Popeye's. No other person or franchise can make Popeye's chicken but Popeye's Chicken itself. The uniqueness of the product stays with Popeye's itself.

Another question you want to ask yourself before you buy a stock is whether you know what the product is all about? Put differently, do you understand what you are investing in? If you don't know what the company's product is about, stay away from it. Invest in something that you do understand. One of the cardinal rules of investing is to know what you are investing in; otherwise don't invest in it. In other words, if you cannot explain explicitly in your own words what the company's product is, then you should not invest in it.

A third question that you should ask yourself before you buy a stock is whether you think that the company that you are pondering investing in, do you think that it will still be around for 20 more years? Or, put differently, do you believe that its product will in the next 20 years become obsolete? Is the company you're considering investing in a Word Processor or a Hershey's Chocolate? The former stayed around for a few years. The latter has been with us for over 70 years! If the company you are considering investing in is more synonymous to a Word Processor, you don't want to invest in it. On the other hand, if it's more like a Hershey's Chocolate, you just might want to hold on it for dear life and, mind you, for the rest of your life!

Finally, a fourth and final question you should ask yourself before you buy a stock is stay within its own area of expertise? If so, consider investing in it. If, on the other hand, it doesn't, my advice to you is to look somewhere else. My wife works as a legal interpreter on a free lance basis. One day she was doing her job as a legal interpreter in court and realized that the lawyer representing the client that she was interpreting for had no idea what she was doing. No, the lawyer was not incompetent as far as the law was concerned. Her in competency was in the area of law that she knew little or next to nothing about. company's have been known to guilty of the same thing. They might know furniture, but they don't have the darnest idea about books! The stock you want to buy is that of companies that stay within their own expertise or specialty, not in those that are all over the map as far as other companies that they acquire or merge with.

There you have it in a nutshell: If you are able to give a positive answer to the all of the questions listed above, then, yes, you should think seriously about investing in the stock you are pondering investing in. On the other hand, if you cannot give a positive answer to all of the questions listed above, you should look for another stock to invest in.