Running a business is about generating a profit.

When investing in something you should be asking your self if you would be buying this stock if it was buying the business behind it. For investment in single stocks this is what you actually do, and it may sound all too obvious.

This business perspective of looking on investments is also advocated by Warren Buffet. He has a lot of advice for evaluating the business based on management, the business idea and the financial side of the business. Warren Buffet is a value investor and looks a lot on the earnings.

Earnings are the easiest to look at and it can provide a initial gauge of what you are paying for the business. How much are you paying for each dollar earned? Are you buying a business that is generating money? The less money that is generated the less it is a business it is, sort of. Many of the high tech companies do not generate any impressive amount of money, none the less there are fortunes traded each day. Most of these companies that earns little money live based on the promises of future earnings, that someday the company will generate money. Other companies are more sort of research companies, for example in the drug or technology industry, these companies mostly earns very little money, but when what they are researching gets mature enough it can be sold and money will start to tumble in.

Often the companies that are very little business-like are very risky, there is a lot of uncertainty related to what the future earnings will be and if things will work out as expected. Of course you are compensated with a high return if it becomes successful, but there are a lot of these growth companies that fail and then there is potential for big losses.

Bottom line, when you buy stocks it is a lot safer to go for companies that actually is running a business and earning money. When the earnings are expected to come too far into the future there is a lot of things that can go wrong down the road.