Impulse buying for a chocolate bar and a stock has different consequences. The chocolate bar is a low cost pleasurable treat. The calories can be burned off at the gym or on the hiking trail. Buying the wrong stock on impulse could lead to being stuck with a money losing investment that could be hard to unload. This impulse buy can cost you thousands of dollars in losses.

Having Fun

The cardinal rule of good investing is to do your research first before buying the stock. By being properly informed, you have better odds of picking a winning stock instead of being stuck with a loser. If you cannot comfortably describe what the company does and how it makes money, how do you know if it's a good investment.

The key to doing good stock research is having fun following the industry and the respective companies. A natural interest means you will want to be more knowledgeable about the workings of the industry. You will then know which companies are producing the products that consumers want.

Is The Corporation Worth Investing In

Now that you have picked an industry you enjoy following, the next step is picking good investment candidates and avoiding the under performers. Here are some things to consider.

Is The Industry Expanding Or Shrinking: If the industry is growing, there are many opportunities for companies to quickly grow sales and profits. If the industry is shrinking or quickly becoming obsolete, it does not matter how good or competitive the company is. The demand for the product will disappear.

Who Are The Strong Players : In this ultra competitive world, only the best and brightest will survive. The companies with desirable, unique products and cost efficient business operating models are the ones with the best odds of prosperity.

Are The Company's Sales and Profit Growing: Investors will put a premium on a company who is constantly looking for ways to improve their results. A company who cannot increase top end and bottom end growth will probably have shares whose price is languishing.

Is The Company Financially Sound: A company with low debts and strong operating cash flow are in a position to boost shareholder value. They could buy back shares or pay out dividends. If the company's balance sheet is stronger than its industry competitors, it could quickly expand through acquisitions.

The Company's Financial Ratios: Most industry players' financial ratios such as price to sales and price to earnings trade relative to each other. If a company's ratios are lower than its competitors, it can be worth looking into as a potential bargain investment play. If the business conditions that are depressing the company's financial ratios are found to be only temporary, its shares could be a bargain to purchase.

Conclusion

To make money in stock investing, discipline is needed. The right questions need to be asked. If the company does not fit the profile of a great company to own, walk away and find another investment candidate. After all, the ideal stock portfolio is filled with good companies that are focused on increasing the value of their shares.