If you think that all stocks can be characterized as BUY, SELL, or HOLD, you are short-changing yourself. PASS is a legitimate category, and it is frequently the end result of stock research.

Whenever you research a stock, the goal is to find "the perfect investment."

The definition of the perfect investment, of course, differs according to your own unique investment style. Over time, you learn what type of investment works for you. If you can, it is best to develop a set of criteria you can use, to find stocks whose risk you can live with.

When you have such a set of criteria, developed over time for your own personal comfort, you can consider yourself an experienced investor.

For example, here is a simple set of criteria, which works for me, for an ideal technology stock.

• Booming market, or better, liquefies an existing large market
• Little competition, or all competition with less market share
• Potential not priced into the stock
• Sustained Competitive Advantage

Of all these, the sustained competitive advantage is the most important. If you can find a tech stock which will withstand competitive attempts to displace it, you have usually found a winner. Best of all is one whose advantage is so strong, that competitors don't bother. Microsoft (MFST) in the Nineties is the best example.

Note that "best product" is not one of the criteria. Neither is being first. Microsoft has been the greatest tech investment of all time, yet it has rarely had the best product. At least, not at the beginning. But it always had a complete lock on distribution, because it was preinstalled on all PCs. And for years, until the mid-nineties, Microsoft's potential was never fully priced into the stock.

Other examples of stocks that fit these criteria are Metromedia Fiber Network, (MFNX), which Briefing first profiled in August of 1998 and Cree, (CREE), which Briefing first profiled in November of 1998. Both fit all four of these criteria at the time, and both have proven to be fantastic investments.

In short, any time you find a stock that meets all four of these criteria, it can be rated a BUY.

A stock which meets all the criteria except price can be considered a HOLD.

Sometimes you come across a stock whose measurement against the criteria comes up with a "NO" in every category. That gives you a great SELL rating, or a "SHORT" signal, if you don't have a position.

Examples of stocks which failed all four of the above criteria, in Briefing's research in the past, include Red Hat (RHAT) in December of 1999, and Priceline (PCLN), in July of 1999. Both have been very successful shorts over that time period.

But these are examples of stocks where it was possible to make a solid judgment about all four criteria.

Whatever criteria you use, it isn't always possible to accurately make a complete judgment about a stock.

If you choose the four criteria above, but can't really determine the answer on a couple of them, what then?

When that happens, the end result of your stock research is simple: PASS.

And this happens all the time. We put a lot of stocks in the PASS category. Sometimes, you just can't find out all the answers. In our examples, the sustained competitive advantage criteria frequently are difficult to answer.

But when they are in the PASS category, it may well be worth keeping the stock on your radar screen. Who knows, you may eventually uncover the missing information that makes the stock a buy.

If you do put a stock in the PASS category, and the price then goes up, it was not a mistake!

You can't blame yourself for missing the opportunity. It is always better to wait to make an informed decision, than it is to make a risky bet.

After all, without a complete understanding of why you are making an investment, you are just betting.

And when you bet, without a full understanding, the stock may have a simple 50-50 chance of moving either way, for all you know. And most of us only remember when the stock we "almost" bought goes up. We forget about the ones we almost bought that go down.

But when you develop a set of criteria for stock picking which works for you, you will frequently find stocks that look interesting, but for which you can't get the complete story.

When that happens, it is best to rate the stock a "PASS."

Robert V. Green