Valuation, Valuation, Valuation
If you are a medium or long term investor and you can't reasonably justify that what you are buying is undervalued, then why buy it??? Maybe because it's all the rage in the press? Maybe because an industry insider friend of yours told you it's the way to go? Maybe because this wildly popular company is going to IPO - and you never heard of Facebook?
Well I firmly say that if you can't justify a purchase in terms of valuation then put your money into a bond-like fund or dare I suggest it... a savings account. The most popular rule of thumb method relies on the price-to-earnings ratio, followed by the price-to-sales ratio. The article below covers these methods and a host of others. If you're looking to refine your approach as well as look at alternative methods for justifying a long term purchase this article is worth a read.
Once you have a firm understanding of basic valuation, your investing acumen should improve greatly. You will learn to confidently reject the views of Wall Street analysts who are often have multiple revenue arrangements with a public company and therefore are unlikely to provide you with an unbiased stock purchase recommendation.