When you buy an items, do you ever look to see if it made in China? How good is the quality of the products that China make? When you go to WalMart and buy water in quantity, do you ever ask yourself does the quality differ when compare to other brands. The same principle can be said with stock.

The main risk to investor is buying low quality stocks in the bull market. It really doesn’t matter how many shares of XM or Sirrus radio you owned if the quality are below average. How do you know the quality of a company that you buying? I believe that you have to know the business model if you want to know the quality of that company. You must understand where the company makes money, and where it spending it. Think of yourself as part owner of a corporation. You get better result from your portfolio if you take investing as a businesslike.

When I own a company in my portfolio, I don’t really care how much it decline as long the quality is still in good shape. The main risk to investor is buying low quality stock in the bull market not how much it declines in the bear market. The bear market provides you a chance to buy companies on sales and at discounts.

Summary

When you are buying a stocks, applied the same principle as you were shopping at WalMart. Does this brand offer better quality than WalMart brand. Does this brand taste better than WalMart brand. You have to always applied the quality principle when buying anything, same goes for stock.