If a friend tries to sell you on some stock in a small company you've never heard of, be sure to investigate before investing any money.
Call the company and ask for an investor's package; this will include an annual report, press releases, and other reports. You might also look up these documents at the company's website or at the Fool's Quotes & Research area. Try searching for info via Google or some other search engine. If you can't get 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 at www.nasaa.org.
Finally, you can take advantage of the knowledge of your fellow Fools by looking up the company on our CAPS rating service. We've got ratings on thousands of companies by thousands of participants, and many of the ratings are accompanied by enlightening comments -- both positive and negative.
To learn more about investing Foolishly, visit our Fool School and our Investing Basics area. Or check out some of our inexpensive and well-regarded online how-to guides (which feature money-back guarantees). You can also learn all about brokerages and find one that's right for you in our Broker Center.
