Ask First, Analyze Second

Before you dive into earnings reports and balance sheets, there’s something even more important:

Making sure a stock actually fits you.

This lesson gives you a pre-investment checklist—a set of smart questions that can help you filter out bad fits and focus only on the opportunities worth your time.

Pre-Investment Checklist: Key Questions to Ask

Use this framework to guide your thinking before you commit time or money.

Clarify Your Investment Goals

• Time Horizon: Are you investing for the short term (months to a few years), or long-term growth (decades)?Your time horizon should influence your risk tolerance and stock selection.

• Portfolio Allocation: What percentage of your portfolio will this stock represent?Avoid overloading any single position unless you’ve done the deep work.

• Time Commitment: Are you willing to track this company actively, or do you want a more passive approach? Index funds and ETFs require less monitoring than individual stocks.

Understand the Company’s Context

• Industry/Sector: What sector is this company in—tech, healthcare, consumer goods, energy? Sector trends can make or break performance, especially in cyclical industries.

• Competitors: Who else plays in this space? Even dominant companies face threats from disruptors.

Example: Coca-Cola vs. Pepsi, or vs. health-conscious beverage startups.

Evaluate Dividends and Risks

• Dividend Policy: Does the stock pay dividends?

A steady dividend can indicate financial health—but don’t blindly chase yield. Make sure it’s sustainable.

• Risk Factors: Think through potential vulnerabilities.

Example: Soda companies face health trend headwinds. Example: Banks move with interest rates and credit cycles.

Self-Assessment: Do You Understand the Business?

• Can You Explain It Simply?

If you can’t describe what the company does and how it makes money, don’t invest yet.

• What’s Its Edge?

Does it have a durable competitive advantage—like patents, brand loyalty, scale, or pricing power?

• Example: If you’re looking at Apple, understand not just iPhone sales—but how services like iCloud and Apple Music support recurring revenue.

Why This Checklist Matters

Taking the time to answer these questions will help you:

• Avoid hype-driven buys

• Spot knowledge gaps before they cost you

• Stay aligned with your goals and risk comfort

• Focus only on stocks worth digging into further

Think of this as your filter. If a stock passes, then it’s worth a deep dive into the numbers.