NEW YORK (CNN/Money) - With the mood of the market apt to lurch from one extreme to the other at the drop of a hat (or a Cisco earnings report), it pays -- quite literally -- to keep a level head. But that's hard to do unless you have a good idea as to why you're invested in the particular stocks that make up your portfolio.

It's amazing how many investors forget the second half of the old investing mantra: Know what you own and why you own it. There are plenty of investors out there that know a great deal about the companies they're invested in -- diligently listening in on earnings calls and scanning industry publications. But a surprising number of these investors couldn't tell you except in the vaguest terms why they own a particular stock.

Is it an up-and-coming growth stock or an elderly dividend-payer? A "momentum" play or a distressed deep-value stock? These are the sorts of questions investors need to ask themselves before clicking "buy." Stocks can be weighed and measured and ultimately judged by any number of different criteria, and sharp investors can disagree violently on the best way to value a stock. But chances are you'll do much better as an investor if you can answer the "why" question with a somewhat convincing argument.

Take, oh, Cisco -- a stock that tends to arouse more passion than almost any stock I've written about. Judging from some recent e-mails I've gotten, some investors seem to regard Cisco with an almost religious faith, dismissing any criticism of this particular company's stock as a sign of incipient Luddism or insufficient patriotism or of some horrific personality defect.

But they aren't the only ones thinking irrationally about the stock. Clearly, Cisco stock isn't really worth upwards of twenty percent more today than it was this Tuesday. It was either undervalued Tuesday or it's overvalued now (or its value is somewhere in between). So which price -- $13 or $16 -- is closer to the stock's intrinsic value?

Well, what kind of stock is Cisco? Though it's obviously way off its bubble-era highs, Cisco doesn't look like much of a value play: After all, the stock still trades at a considerable premium to the market as a whole, changing hands for roughly 44 times estimated 2002 earnings (for the fiscal year ending in July) and 30 times estimated 2003 earnings. (The S&P 500 sports a forward P/E of roughly 22.) It seems fair, then, to judge Cisco as a growth stock.

So far, so good. So was there anything in Cisco's report that would help us evaluate the company as a growth play? Well, Cisco's earnings "beat the street" by a couple of pennies a share -- but only because the company was able to cut costs fairly ruthlessly. That may in itself be a good thing. But it's not a good reason for a growth investor to buy the stock (as at least one reader e-mail to me suggested).

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No company can boost earnings in perpetuity through cost cuts alone -- ultimately, it has to grow its revenues as well. And Cisco's revenues were up only 2 percent from a year earlier, coming in a bit lighter than analysts had expected. That's not terrible, given the troubles faced by the telecom sector, but not great. More to the point: The results don't really give us much of a clue as to Cisco's long-term growth potential.

And that's the key issue here, for the only way the company can justify its premium to the market as a whole is for the company to post considerably better-than-average growth (once the economy picks up again). If you believe that Cisco really can hit its "stretch goal" of 30 percent annual growth from now 'til doomsday, the stock looks cheap even after its sudden lurch upwards. If you think that sort of growth is a pipe dream -- or if you have issues with the company's accounting -- you might not see Cisco at the $13 it was fetching before its earnings report as much of a bargain.

Why ask why? Because it's good for you, like flossing.

(More on the "why" question in upcoming columns.)

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