Five questions I ask before I buy any stock (pt 3 of 3)

Hey {{first_name|Investor}} -

Over the last two Thursdays I built the foundation. Part one made the case for starting with the sector and mapping it. Part two showed how I teach myself a new field from zero, using AI as a tutor. Today we finish the job. You understand a sector and can map it. Now how do you judge a single company inside it, and how do you decide when to buy or sell?

This is the part people ask about most, and the part I'd rank as least important. That sounds backward, so let me explain as we go. First, the questions I run every company through.

Once a company clears the sector and map work, I run it through five plain questions. Think of them as a checklist in my head. No single answer decides anything. I'm reading the whole picture they paint together.

One: is the whole sector growing? This comes first on purpose, because it's the tide that lifts everything. A decent company in a booming sector often does better than a great company in a shrinking one. When demand for a whole category takes off, even the second and third names get carried along. So before I fall for a company, I make sure it's swimming with the current, not against it.

Two: does the company hold something hard to copy? This is the moat. It might be rare design talent you can't hire overnight, a factory almost nobody else on earth can build, or a pile of patents and hard-won manufacturing skill. The test is simple. If a rich competitor wanted to copy this tomorrow, what would stop them? The longer the answer, the stronger the moat.

Three: would it survive if its hottest product flopped? Every exciting company has one story the market is betting on. I ask what happens if that story disappoints. A company with several real businesses has a floor under it. One riding a single product has none. Neither is wrong, but they're very different risks, and I want to know which I'm holding before the bad news, not after.

Four: is the market still misjudging what this company is? This is the sneaky one, and often where the opportunity lives. Sometimes a company has quietly changed and the crowd hasn't updated its picture. It still gets described as its old, sleepy self. That gap between what a company has become and what the market still thinks, that's the window. Once everyone sees it clearly, the window closes.

Five: is a catalyst coming that has nothing to do with the next earnings? Not every force that moves a stock shows up in the earnings report. A government stake, a big strategic investment, a new policy, a partnership with a major player. These can matter enormously, and a purely number-crunching view misses them. So I always scan for what's coming from outside the income statement.

The picture comes from stacking all five. Take memory, my strongest area, and Micron ($MU) as a quick illustration. Is the sector growing? Yes, AI has sharply raised how much memory a system needs. Does it hold something hard to copy? Yes, only a few companies on earth can make these chips at all. Would it survive one product stumbling? Weaker here, because the business leans almost entirely on memory. Is the market misjudging it? That shifts over time, worth checking each quarter. A catalyst from outside earnings? Being one of the few makers producing on US soil draws policy attention that has nothing to do with any single report.

Notice how the answers pull in different directions, strong on some, weaker on others. That's the point. The five together tell you what kind of company you're holding and where its risks sit, far more useful than a thumbs up or down.

I didn't invent these at a desk. Each one is a scar from getting something wrong. Here's the one that taught me the most.

I was down on Intel ($INTC) for a long stretch. I couldn't picture it beating the leaders on its hardest problems, so I quietly wrote it off. Then the stock ran several times over, and I had to sit with why I'd missed it.

The lessons stung, and they became the questions above. When the whole pie grows, second and third place win too, which is why question one asks about the sector before the company. AMD ($AMD) is the clean version. Its slice of data center chips is small next to the leader's, and it doesn't need to win the race to do well. It only needs the market to keep growing, and it has.

Intel also taught me that money moves for reasons the income statement never shows. Part of its run came from outside forces, government support and strategic investment arriving one after another, exactly what question five is built to catch. And hard-won assets pay off the moment demand turns. Intel's packaging skill, the craft of binding several chips into one tight bundle so they act like a single brain, kept compounding even while people wrote the company off. Marvell ($MRVL) shows the same shape from the other side, a team whose engineering depth became the whole story once the big cloud builders raced to design their own chips. That's question two in real life.

The pattern is clear. I'd buried my whole analysis inside one company and missed the bigger forces around it. The five questions exist so I never make that error again.

Now the part I called least important. Here's why. If you've done the sector work, the map, and the five questions honestly, the buy and sell decisions almost make themselves. Get those wrong and no clever trading rule saves you. So I keep this short.

I let conviction decide how much weight a name carries, not how thrilling the upside sounds. This is where people trip. If you size positions by the biggest possible payoff, you put the most money behind the riskiest, least proven names, which is exactly backward. Weight should follow how well you understand something, not how much you're hoping.

I try never to buy in a rush. The market almost always offers another chance. When you chase a name out of fear of missing it, the price you paid is only half the damage. The bigger cost is that you then hold it nervously, flinching at every small dip, letting the chart make the calls your homework should be making. A calm buyer keeps their judgment. A rushed one hands it to the ticker.

I sell when the answers to those five questions get worse, not when the price falls. If my read on the sector changes, or a company stops investing in its own growth, I step back regardless of what the stock did lately. Notice what's missing there: the price I paid. What you paid has nothing to do with the company's future, so it has no business driving the decision.

Two situations round this out. A falling price with the story still intact is closer to an opportunity than a warning. And when everyone finally agrees with me and tells the exact same story about a company, my edge is gone, so I'll trim even though nothing broke. That's question four in reverse.

One habit ties it together. I check my weights on a regular schedule, not only when something dramatic happens. If a name has drifted far ahead of my conviction in it, I ease it back. If another still earns its place but has slipped smaller, I top it up. Done consistently, this nudges you to trim what has run and add to what has lagged, no prediction required. It's the automatic result of keeping weight and conviction lined up.

Step back and look at all three parts together. Choose sectors you can genuinely understand. Map them until the whole chain is visible. Learn the hard ones with AI as your tutor, then verify. Judge each company with a handful of plain questions. Let conviction, not hope, set the size, and let your assessment, not the price tag, drive the exits.

None of that is a prediction. It's a process, and a process is something you can repeat and improve. The names will change. My questions get patched every time the world proves one of them wrong. What stays is the habit, and the habit is the real game. It's the difference between renting conviction from a stranger online and owning it yourself. Owning it is what lets you sit calmly through a scary week, because you know exactly why you're there.

That's the series. Thanks for reading all three. If this way of thinking clicks and you'd like it in one place, my book Make Your Own Alpha walks through the full method, questions and all, with more room than a Thursday email allows. The title is the point: the goal is an edge that belongs to you.

Stay disciplined - Koh

Disclaimer: Nothing in this newsletter constitutes investment advice or a recommendation to buy or sell any security. Numbers and observations are as of publication. I may hold positions in companies discussed above. Always do your own research and consult a licensed financial advisor before making investment decisions.