When it comes to investing, due diligence is a necessity.

Without it, you’re simply throwing darts, hoping to hit a winner.

Instead, take these essential steps into consideration with each investment idea prior to taking a position.

That’s Rule No. 1. Make your money work for you at all times.

With fundamental analysis, we’re trying to identify key pieces of information that will help tell us if a company is overvalued, or undervalued with good chances for upside.

With this analysis, the goal is to buy companies at a deep discount to their intrinsic value. Billionaire Warren Buffett subscribes to fundamental analysis, for example. And, as we all know, he’s swimming in money because of it.

That brings us to Rule No. 2 – Ignoring the “Noise.”

All too often, we’re told to ignore stock lows because stocks hitting new lows tend to continue making new low, for example. But that’s not always the case. In fact, many stocks hitting 52-week lows are there undeservingly. It’s your job to find out which ones hold the most value and the most “bang for your buck.”

To do so, you must begin to understand the underlying nuts and bolts of the stock.

Where does it sit fundamentally?

Is the stock overvalued/undervalued based on its P/E?

Is it trading at or below future growth, per its price to earnings growth ratio (PEG)?

Is the company making a profit?

How does the stock trade in comparison to overall sales?

Where does the company stand with regards to competition?

Rule No. 3 – Only buy Financially Sound Stocks

The last thing any of us can afford to do is sink money into a stock that’s not fundamentally sound, or lacks economic moat, as Warren Buffett frequently speaks of.

To find those very stocks, look for financially sound stocks. Does it have:

A history of being up and staying up substantially over the last 3-5 years.

Positive book value

Little or no debt, plus the ability to service any debt that exists without issuing more stock and diluting shares.

A good cash position.

Increasing revenue and income.

Solid trading volume.

By simply following those very rules, you should ideally be able to generate above-market returns with below market risk.