Buying a stock: do your homework

“One person’s hot growth stock is another’s disaster waiting to happen,” said Pat Dorsey, author of “The Five Rules For Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market”.

“For one thing, you’re putting your money at risk, so you should know what you’re buying,” Pat Dorsey said. His advice? “…you can’t just take some one’s word that a company is an attractive investment.”

In other words, you must “Do Your Homework”. This is Pat Dorsey’s first recommended rule. This means, according to Pat Dorsey, “sitting down and reading the annual report cover to cover, checking out industry competitors and going through past financial statements.”

Pat Dorsey’s other recommended rules are: find economic moats, have a margin of safety, hold for the long haul, and know when to sell.

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