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• The market they play in, their competitors, and their market share
• Historical and forecasted performance and growth in terms of revenues and income
• Management team and their plans
• Stock performance, market capitalization, P/E ratio, etc.

Many people prefer to invest in companies that are in their field of work or expertise. Being a computer engineer by education and vocation, I prefer to invest in high-tech companies. There are benefits and drawbacks to this approach. The biggest benefit is familiarity with the field and the companies that play the field. The big drawback is possibly having irrational bias towards the field and therefore a lack of adequate diversification.

If you are one of those unlucky investors who bought into the biotech stocks because they were hot at one time, you know what I am talking about here. In the late 80s, the biotechs staged a strong market performance and snared many investors into pouring billions of dollars into their inflated stocks. The end result wasn’t pretty. Countless investors woke up to see their investments evaporate in a relatively short time. Many of those investors had not taken their time to evaluate their investments or choose wise diversification tactics to protect themselves against the sector downturn, and they suffered severe consequences. As a more recent example, the Internet stocks which began an amazing run in 1997 were decimated by mid-2000, losing almost $2 trillion in market value. As fast as they had risen into the stratosphere, they sank even faster in a few short weeks, leaving many with pennies on their invested dollars. When it comes to investing, there are always risks, but we all can be better prepared for them if we take a little time for due diligence before jumping in. So do your homework. If you still insist on taking big gambles, that’s fine. As long as you can stomach losing it all. …