Last week’s answer

I came to life in 1899 as a Detroit five-and-dime established by Sebastian Spering Kresge and went public in 1918. Over the years, I bought and sold part or all of Walden Book Co., OfficeMax, Borders, The Sports Authority and Builders Square. Penny Marshall, Jaclyn Smith, Kathy Ireland, Martha Stewart and Rosie O’Donnell have sent customers to me. My brand partners include Sesame Street, Disney and JOE BOXER. I operate about 2,100 stores, and my blue light shines online. I rake in some $37 billion per year, but filed for Chapter 11 bankruptcy protection recently. I hope to turn myself around. Who am I? (Answer: Kmart)

Know the answer? Send it to us with Foolish Trivia on the top and you’ll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

Researching companies

Between discovering an intriguing company and plunking your hard-earned money into it, you need to do some homework. Below are the kinds of questions you should ask about any potential investment.

Don’t get intimidated or discouraged by the list. You needn’t master everything at once. Beginning investors should just keep learning slowly. We can help you at www.Fool.com, and you can learn a lot from Fool books and those by Peter Lynch with John Rothchild.

What business is the company in? What’s its business model (that is, how exactly does it make its money)? Is it in a profitable, growing industry?

What’s the company’s track record? Does it have a good record of rewarding shareholders? Have revenues and earnings and profit margins been increasing in past years? How do these numbers compare with those of its competitors?

What’s discernible from its financial statements? Has the company’s debt level been rising or falling? Are accounts receivable and inventories rising no faster than revenues? Are profit margins healthy and, ideally, growing? How about return on equity (ROE), return on assets (ROA) and other measures? Are there any red flags to worry about and investigate further? Is anything in the statements unusually cryptic?

What’s the company’s competitive position and strategic vision? Does it have a strong brand? Does it invest sufficiently in research and development of new products and/or services? Is it a leader in its field? Is it gaining market share? Do you have confidence in management and management’s ability and dedication to keep the company growing, to be straight with stakeholders, and to look out for shareholders’ interests?

What are the risks that the company and its investors face?

Is the stock valued attractively? This is a difficult question to answer for any stock, and there’s usually no one right answer, either. You might begin by looking at the company’s current P/E ratio, comparing it to the firm’s historical numbers.

Next week we’ll offer some resources to help you answer these questions.

Bought and held

I have never been lucky buying mutual funds, so I pick individual stocks and hold as does Warren Buffett. In 1987, I bought 300 shares of PepsiCo for about $30 per share, spending roughly $9,000. Over the years, the stock grew and split, so now I have 1,800 shares worth some $90,000. In addition, PepsiCo spun off Tricon Global Restaurants (which operates Taco Bell, Pizza Hut and KFC), so I now have 180 shares of that, which is worth more than $10,000. On top of it all, I get about 11.5 percent of my original investment back each year in dividends! Walter Beggs, Dakota Dunes, S.D.

The Fool Responds: Kudos! Many people would have sold (and perhaps re-bought and sold again) during those many years. By simply hanging on to your stock in solid, growing companies through ups and downs, you’ve avoided additional commissions and have deferred paying taxes on your capital gains. It can be tempting to trade stocks frequently, but doing nothing is often the best thing to do.