Keep these 3 things in mind while buying stocks

When you are plannig to buy a particular stock. Three things you should bear in mind about the products or services that the company renders:
(1) Is needed or desired,

(2) Is thought by its customers to have no close substitute, and

(3) Is not subject to price regulation."


Read this info from the following site:
http://specials.rediff.com/money/2008/jun/17sli02.htm

[Amit]: So if the product/service is needed for human beings and it does not have a close competitor and it is not subjected to price regulation then you should proceed to the next step of looking at PE and PEG of the company...

Ex:
(1) Companies like Country Club deal with holiday resorts. A holiday is desired by people but not needed. In case of Financial crunch, last thing people think of is a Holiday. So I feel companies like these do not satisfy criteria 1.

(2) Warren buffer's favourite : gillette. Though many companies came and tried their hand at razors. Only company that stayed is gillette. Also sectors where there are entry barriers also might fall in this block. Ex: Telecom where spectrum is scarce. An example for companies that didnt obey this rule where .com companies. In the year 2000 so many .com companies came up which promised god. But all of them went bust.

(3) Oil Companies, Steel Companies, Cement companies that fall in this category. All these companies are regulated to some extent in india. Expecially oil marketing companies.
Some sectors that are not regulated are: IT.