An investor who plays it safe seeks proof first. Here are two things to look for:

• quarterly earnings per share up at least 25% over the previous year.
• six to 12 consecutive quarters of earnings increases.

It might be a good sign if the top mutual fund managers are buying the stock. (You can find out what stocks a mutual fund is holding in the fund's prospectus, and many financial Web sites that give you quotes on mutual funds will also list the holdings, such as Morningstar.)

Dolan Smart Money Move: Don't get too excited if you see a lot of mutual funds buying a particular stock. We're nonplussed by what mutual fund managers are buying; most of these "experts" invest like lemmings, following the flock right over the cliff. (Remember when everyone was buying Amazon and Enron while the stocks were tanking?)

11 Questions You Should Ask Before You Buy a Stock

Fortunately, these days you can find plenty of research data on your own. It's easily accessible online. When it comes to price, your aim is to track a stock's performance over the past year so that you can buy it low.

But before you invest in any stock, there are several important questions you should ask yourself–and answer thoroughly–so that instead of gambling with your money, you'll be plotting an investment strategy.

And if you invest through a broker or financial planner, you should ask him or her these questions before every stock purchase. This is an effective way to show a broker that you are a client who isn't going to let anyone pull the wool over your eyes!

• Why does this stock qualify as an appropriate idea for me in light of my investment objectives (which are part of your new account form with a broker)?
• Is the company a leader in its field or does it have the potential to be one? (Why?)
• How strong is this company's management team and how much stock do they own? (Why don't they own any/or much stock? Where's their commitment?)
• Does the company have a unique product or service?
• Is the company's debt low–or at least stable?
• What's the "downside" to this company's supposedly bright future?
• What will changes in the economy, consumer buying habits, and the political scene do to the price of the stock and the company's products?
• How does this company's performance compare with that of its competitors?
• On what assumptions are the projections you have presented based?
• How did the company fare during the last recession?
• When (and under what circumstances) do we sell? At what price?

Ask a broker this last question and you'll nail him to the wall! Too many brokers think only about buying, without a goal or a contingency plan in case the investment doesn't pan out.

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