1. Invest for the long term. The legendary Benjamin Graham noted that in the short run, the stock market is a voting machine; in the long run, it is a weighing machine. At any given time, a stock will sell for whatever people are willing to pay but, over time, a stock's price will be heavily influenced by the underlying value of the company.
    
2. Understand why you're buying. When you purchase shares in a company, you are buying a piece of its future. The value of a stock is based on the cash you'll get — you are exchanging cash now (the price of the stock) for a stream of cash into the future (dividends). The value of your shares is determined by all these payments, and what they are worth at the present time.
    
3. Understand what you're buying. Stocks are the longest term investment you can make, and that investment can be earning cash for you from now until, hopefully, the end of time. Remember that even though you might not want to hold a stock forever, the price you get for it is going to be affected by its future prospects at the time of sale. Why, then, wouldn't you want to own shares in companies which have good long-term futures?
    
4. Look for competitive advantage. The future of any company in which you invest is going to be determined by its competitive advantage, and the sustainability of that advantage over time. Ask yourself, does this company make a product which is better in the minds of its customers, or can it produce a common product more cheaply than can others? Is this product or cost advantage likely to continue or even expand?
    
5. Invest with the best. In addition to looking for companies with sustainable competitive advantages, pay attention to the senior managers — these folks have a lot of say in how well a company spends your money (as a stockholder, you are an owner — in effect, the company's money is yours). Take the opportunity to meet these managers at a conference or an annual meeting, or at least to listen in on their calls to investors (if you go to the Investor Relations section of a company's web site, there is usually a link to the latest online presentations). Although you might not be an expert at analyzing numbers, you're probably pretty good at judging people, having had a lifetime of practice. Also, take a look at the proxy statement (one of several financial statements available at no charge at www.freeedgar.com) and see how much the CEO and other senior managers are being paid in cash and stock options — they deserve to be well paid, but not to become rich at your expense.
    
6. Cash is king. When analyzing a company, you should spend a lot more time reviewing its cash flow than its revenues and profits. The Income Statement details the accounting results based on the requirements of GAAP (Generally Accepted Accounting Principles). The Statement of Cash Flows details the actual inflows and outflows of cash, numbers which are more valuable to an investor.
    
7. Know your goal. If you are trying to outperform the averages — for example, the S&P 500 index — pay attention to relative valuation. To keep things (relatively) simple, one quick-and-dirty approach is to compare the growth rate of the stock's EPS (look at the last 10 years, available in Value Line) to that of the S&P 500 (use 7%). Then, compare the P/E of a stock based on its earnings per share in 2005 to the P/E of the S&P (use 20x). You would like to see the relative earnings growth rate higher than the relative P/E.
    
8. Unpopularity is chic. Since stock prices at any given time are driven by the fear and greed of the crowd, you are more likely to get a positive surprise from an out-of-favor stock. To measure this, go to www.quicken.com and bring up the quote for a stock in which you're interested — if you click on "Analysts Ratings" in the left navigation bar, it will bring up a breakdown of the ratings by Wall Street analysts. For companies which have sustainable competitive advantages and quality managers, you should prefer to buy their shares when more analysts are suggesting Hold rather than Strong Buy.
    
9. Avoid the information avalanche. Wall Street isn't the only source of counter-productive advice — newspapers, magazines, newsletters and television shows have taken a powerful interest in the stock market. The sheer volume of information is overwhelming, particularly to an individual investor who cannot distinguish the nuggets from the McNuggets. The medium might be the message, according to Marshall McLuhan, but the media is not the place to look for the message — at least not when it comes to investing.
    
10. Great opportunities are created by great worries. If you are focused on high quality companies with first-rate managers, you should welcome the occasional streaks of bad karma, whether at the company in particular or the stock market in general. When bad things happen to (very!) good companies, you can have the confidence to give them the benefit of the doubt.

Suggestion: Go to How I Learned to Stop Worrying and Love the Street