If a friend tries to sell you on some stock in a small company you never heard of before, hunt down more information before investing any money.
Call the company and ask for an investor's package, which should supply a lot of information in the form of an annual report, press releases, and other reports. You might also look up these documents online at the company's own website or at the Fool's Quotes and Research area. Try searching for the company's website via Google or some other search engine. If you can't get any or much information about the company, it's not a good sign.
Once you get your hands on the company's financial statements, scrutinize them. Check to see how much the company is generating in sales and net income (earnings). See how quickly these and other items are growing (or not growing). See how much debt the company is carrying -- and whether the debt load is growing or shrinking. Find out what its prospects are. Make sure it's not a penny stock (trading for less than $5 per share), If it is, it's often best to just walk away. Don't rely on rumors of upcoming breakthroughs or promises of profits -- look for a solid track record.
You can also check on whether there have been any complaints lodged against the company (or any security) by contacting the North American Securities Administrators Association (www.nasaa.org).