The 10 Questions Every Investor Should Ask Before Buying a Stock — A Practical Checklist for SGX Investors

A calm, repeatable pre-buy framework to avoid emotional decisions, spot red flags early, and build a portfolio you can trust — in Singapore and globally.

Published: 15 November 2025 | Category: Investor Education / Stock Selection Framework

Most investing mistakes happen before the stock is even purchased.

People buy because the price dropped, a friend recommended it, dividends look attractive, analysts upgraded it, or social media hyped it. That is not a process. That is a reaction.

This guide gives you a disciplined way to think before money leaves your pocket — using 10 questions that work for SGX and overseas stocks. Use it as your default pre-buy checklist.

Key Takeaways (If You Only Have 30 Seconds)

Do not buy what you cannot explain in one sentence (how it makes money, who pays, why it wins).
Look for stable earnings + real cash flow across years — not just one “good quarter”.
A weak balance sheet turns small problems into permanent losses (debt, refinancing, dilution).
Competitive advantage (moat) and management quality drive long-term compounding.
“Cheap” can be a trap — valuation must match business quality, cash flow, and risk.
Dividends are only attractive if dividend sustainability is supported by cash flow and balance sheet strength.
Always write a one-sentence buy thesis grounded in numbers — if you cannot, do not buy.

How to use this guide

Treat this as a pre-buy checklist. If you struggle to answer several questions clearly, you probably should not buy the stock. The goal is not to be perfect — it is to avoid preventable mistakes.

1. Big Picture — Why a Pre-Buy Checklist Matters More Than “Stock Tips”

Most losses come from buying the wrong stock for the wrong reasons. A checklist forces you to slow down and ask: what am I actually buying?

Good investing decisions typically share three traits:

They are based on business understanding, not headlines.
They are supported by numbers, not vibes.
They include risk thinking, not just upside stories.

Explaining it like you’re 11:

Buying a stock without thinking is like joining a school competition without knowing the rules. You might get lucky once, but it is not a strategy.

Analyst insight:

A checklist improves decision quality and reduces regret.
It also increases consistency — the most underrated edge in long-term investing.
This framework is designed to be timeless: it should still work in 5–10 years.

2. Results Summary — Your 60-Second “Should I Even Continue?” Screen

Before you do deep analysis, run a quick sanity check. The goal is to avoid wasting time on businesses that already fail basic tests.

At minimum, look at:

What the company sells and who pays
Whether earnings and cash flow look broadly stable
Whether the balance sheet looks fragile (high debt, weak liquidity)
Whether valuation is obviously “too hot” or “too weird”

If several items already look uncomfortable, pause. The most valuable investing skill is knowing when to say no.

3. Income Statement — Are Earnings Stable, Growing, or Declining?

Look at a multi-year trend (ideally 5 years) for revenue and profit. This helps you see whether performance is consistent or unpredictable.

Minimum trend checks:

Revenue
Net profit

Interpretation:

Stable + rising earnings usually signal a stronger business model.
Wild swings increase risk — even if the stock looks “cheap”.

Explaining it like you’re 11:

If your allowance changes from $2 to $20 to $1 every month, it is hard to plan. Businesses with unpredictable profits are like that — harder to trust.

Analyst insight:

Consistency matters because it reduces the probability of permanent capital loss.
Trend analysis beats “one quarter excitement”.

4. Margins & Profitability — Does the Business Have Pricing Power?

Profitability tells you whether the company is competing from strength or fighting for survival. Competitive businesses tend to protect margins through cycles.

Look for evidence of:

Stable or improving margins
Returns that stay healthy over time (e.g., consistently strong ROE / ROIC)
A business model that competitors cannot easily copy

If competitors can copy the business easily, long-term returns tend to be mediocre.

Explaining it like you’re 11:

If everyone can sell the same lemonade at the same price, nobody earns much. If your lemonade is special and people still buy even when prices rise, that is an advantage.

Analyst insight:

Moats often show up in numbers: stable margins, high returns, and resilience during weak years.
A “good story” without durable profitability is usually not a moat.

5. Balance Sheet — Will Debt and Liquidity Keep You Awake at Night?

Weak balance sheets break during crises. Strong balance sheets let you sleep peacefully.

For non-REITs, look for:

Net cash or manageable debt
Stable interest coverage
A real cash buffer
Low refinancing risk

For REITs, look for:

Gearing < 37%
ICR > 3×
Well-distributed debt maturity
Fixed-rate debt protection

Explaining it like you’re 11:

Debt is like borrowing money for a bicycle. If you can repay comfortably, fine. If you need to borrow again just to repay the first loan, it becomes stressful fast.

Analyst insight:

Balance sheet fragility is a common cause of permanent capital loss (dilution, forced asset sales, dividend cuts).
In higher-rate environments, leverage mistakes become more expensive.

6. Cash Flow — Is the Profit Real or Just Accounting?

This is one of the most important filters in stock selection. Good businesses generate cash even during weak years.

Look at a 5-year trend for:

Operating cash flow
Free cash flow

Core checks:

Is cash flow real (not just accounting profit)?
Does the business generate cash across cycles?
Are there repeated “working capital problems” that drain cash?

Explaining it like you’re 11:

Cash flow is checking whether the money really entered your wallet. Profit is what the report card says — sometimes the report card can be “massaged”.

Analyst insight:

When cash flow stays weak despite “good profits”, investigate receivables, inventory, and capital expenditure.
Repeated equity raising is often a symptom of weak cash generation.

7. Dividends — Yield Is Not the Goal. Sustainability Is.

If you are buying for income, yield alone is not enough. Dividend sustainability is what protects you from dividend traps.

Check:

Is the payout ratio reasonable?
Is cash flow supporting dividends (not debt)?
Is gearing rising?
Is there a realistic risk of a dividend cut?
Are dividends stable across cycles?

A 6% yield supported by stable cash flow is often better than a 10% yield on a weak balance sheet.

Explaining it like you’re 11:

A big allowance is only good if your parents can keep paying it. If they need to borrow money to give it to you, it will not last.

Analyst insight:

Dividends are a financing decision — they must be supported by operating cash generation and prudent leverage.
High yield with weak cash flow is a common setup for disappointment.

8. Management Commentary — Is Management Trustworthy and Competent?

Management quality shows up in decisions, not slogans. In investing, a good business can be ruined by bad management.

Evaluate management on:

Capital allocation discipline
Transparency
Consistency between words and actions
Track record of delivering results
Sensible acquisitions (not empire-building)

Red flags:

Excuses every quarter
Overpromising, under-delivering
Misleading or vague commentary
Excessive related-party transactions
Sudden management turnover

9. A Simple Analyst Framework — The 10 Questions (Copy This)

These are the 10 questions I want you to ask every single time before buying any stock. If you cannot answer several of them clearly, do not rush.

Question 1 — Do I truly understand how this business makes money?

If you cannot explain in one simple sentence how the company earns revenue, you cannot value it.

What actually drives revenue?
Who are the customers?
What gives the company pricing power?
What threats exist?
Is the business model stable or changing?

If you cannot explain the business clearly → do not buy.

Question 2 — Are earnings and cash flow stable, growing, or declining?

Look at a 5-year trend for revenue, net profit, operating cash flow and free cash flow.

Are earnings consistent?
Is cash flow real (not just accounting profit)?
Does the company generate cash even during weak years?

If earnings jump up and down unpredictably, risk is higher.

Question 3 — Is the financial position strong? (Debt, liquidity, gearing)

Non-REITs: net cash or manageable debt, stable interest coverage, strong cash buffer, low refinancing risk.

REITs: gearing < 37%, ICR > 3×, well-distributed debt maturity, fixed-rate protection.

Question 4 — Does the business have a competitive advantage?

Look for signs of an economic moat:

Strong brand
High switching costs
Network effects
Cost leadership
Unique assets
Long-term contracts
Consistently high ROE / ROIC

If competitors can easily copy the business, long-term returns will be mediocre.

Question 5 — Is management trustworthy and competent?

Assess capital allocation discipline, transparency, and a track record of results — not slogans.

Question 6 — Is the valuation justified? (Not too high, not deceptively low)

Cheap stocks can be traps. Expensive stocks can be worth it if growth is real and cash flow is reliable.

Tools to consider:

P/E, PEG, EV/EBITDA
Price-to-NAV (for REITs)
Dividend yield, free cash flow yield
Peer / industry comparisons

Core question: Am I paying a reasonable price for the quality and growth of this business?

Question 7 — What is the dividend policy, and is it sustainable?

Check payout ratio, cash flow coverage, gearing trend, and dividend stability through cycles.

Question 8 — What could go wrong? (Your risk checklist)

Map the risk clearly. Common areas:

Customer concentration
Regulatory changes
Interest rate sensitivity
Credit cycles
Supply chain dependence
Technological disruption
Competition
Leverage risk
Geopolitical exposure

If downside risk is severe or hard to control, skip the stock.

Question 9 — Does this stock fit my overall portfolio?

A stock can be good on its own but wrong for your situation.

Am I already overweight in this sector?
Does this increase my overall risk exposure?
Does it genuinely improve diversification?
Does it complement my dividend vs growth balance?

Question 10 — What is my buy thesis in one clear sentence?

Before buying, write:

“I am buying this stock because…”

The sentence must be clear, specific, and grounded in numbers.

Weak theses (avoid):

“Price is low.”
“Analysts say it’s a buy.”
“Looks like a recovery play.”

Stronger examples:

“This REIT has strong occupancy, stable cash flow, gearing below 35%, and I expect DPU growth after refinancing stabilises.”
“I expect DBS to maintain strong NIM and dividend growth in the next 12–18 months.”
“Sheng Siong has stable margins, strong cash flow, and consistent ROIC, making it a recession-resistant compounder.”

If you cannot articulate a high-quality thesis → do not buy.

10. Common Red Flags — What This Checklist Helps You Avoid

These 10 questions filter out:

Low-quality companies
Speculative plays
Weak business models
Misleading valuations
Dividend traps
Emotional decisions

Analyst insight:

Many “value traps” are not valuation problems — they are business quality and balance sheet problems.
Many “dividend traps” are simply weak cash flow and rising leverage.

11. My Overall Take as an Accounting-Trained Investor

Explaining it like you’re 11:

You do not need to buy many stocks. You only need to buy a few good ones. These questions help you avoid bad ones — and that is already a big advantage.

Professional summary:

What matters most: business understanding, cash flow reality, balance sheet strength, and management discipline.
What to ignore: hype, “quick tips”, and price movement without business reasons.
How this improves decision-making: it forces evidence-based thinking and reduces emotional buying.
Why consistency beats prediction: a repeatable checklist compounds over time — even if you are wrong sometimes.

In investing, saying no is often more important than saying yes.

12. FAQ — Stock Selection and Pre-Buy Checklist

Q1. Do I really need all 10 questions every time?

Use them as a checklist, not a burden. Over time, you will internalise them. The point is to avoid blind spots before you buy.

Q2. Is profit or cash flow more important?

Over time, both matter. But cash flow often reveals risk earlier. If profit looks strong but operating cash flow is persistently weak, investigate.

Q3. Can dividends be misleading?

Yes. A high yield can be funded by borrowing or asset sales. Always focus on dividend sustainability: cash flow support and balance sheet strength.

Q4. How do analysts spot red flags early?

Analysts look for weak cash conversion, rising leverage, inconsistent explanations, and valuation that does not match fundamentals. These 10 questions are designed to surface those issues early.

Q5. Is this checklist suitable for REITs?

Yes, but interpret “earnings” differently (DPU and cash flow) and focus more on gearing, interest coverage, and refinancing risk. The same discipline still applies.

A One-Page Checklist You Can Use Immediately

Before buying any stock, you should be able to answer “yes” to most of these:

Do I understand the business?
Are earnings and cash flow stable?
Is the balance sheet healthy?
Does the company have a competitive advantage?
Is management trustworthy?
Is valuation reasonable?
Is the dividend (if any) sustainable?
Do I understand the key risks?
Does this fit my portfolio?
Is my buy thesis clear and specific?

If not, walk away — there will always be another opportunity.

Final Thoughts

You do not need countless indicators or complicated models to be a successful investor. You need clarity.

These 10 questions help you avoid common mistakes and focus on businesses with:

Strong fundamentals and clear business models
Stable cash flow and healthier balance sheets
Responsible management and disciplined capital allocation
Better long-term compounding potential

More practical investing guides coming soon.

About the author

The Accounting Investor (HenryT) is a Fellow Chartered Accountant (FCA) based in Singapore. He combines professional accounting training, corporate finance experience and personal long-term investing to help everyday investors interpret financial statements with clarity and discipline.

Browse more SGX breakdowns on the Start Here page, or the Companies A–Z page.

Disclaimer

This article is for education and general information only. It does not constitute investment, legal, tax or any other form of professional advice, and it is not a recommendation to buy, sell or hold any securities mentioned.

My sole intent is to help readers learn how to read financial statements and think more clearly about businesses. Please do your own research or consult a licensed financial adviser before making any investment decisions. I may or may not hold positions in the securities discussed at the time of writing and am under no obligation to update this article.