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The investor must know as much as he possibly can about the corporation in which he buys stock. The following are some of the questions for which he should get satisfactory answers before he invests his money: 1. What is the company’s history: Is it a solid and reputable firm, and does it have able, efficient and seasoned management? 2. Is the company producing or dealing in goods or services for which there will be a continuing demand in the foreseeable future? 3. Is the company in a field that is not dangerously overcrowded, and is it in a good competitive position? 4. Are company policies and operations farsighted and aggressive without calling for unjustified and dangerous overexpansion? 5. Will the corporate balance sheet stand up under the close scrutiny of a critical and impartial auditor? 6. Does the corporation have a satisfactory earnings record? 7. Have reasonable dividends been paid regularly to stockholders? If dividend payments were missed, were there good and sufficient reasons? 8. Is the company well within safe limits insofar as both long- and short-term borrowing are concerned? 9. Has the price of the stock moved up and down over the past few years without violently wide and apparently inexplicable fluctuations? 10. Does the per-share value of the company’s net realizable assets exceed the stock exchange value of a common stock share at the time the investor contemplates buying? * Source: How to Be Rich by J. Paul Getty |
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