An Unhealthy Scam

My dumbest investment was a company out of Bainbridge Island, Washington, many years ago. The marketing was brilliant, with a sign at Safeco Field, Shaquille O’Neal wearing the company hat at an NBA championship celebration and more. It seemed to be a successful high-tech health business, aiming to combine fitness and health services under one roof. I toured the facilities, met staff and was impressed. I invested $10,000 in the company, but it turned out to be a scam. I can’t recall management’s names, but they should be getting out of prison soon. — S.O., online The Fool Responds: You weren’t alone — that was cited as the largest stock fraud case in Washington state history. It’s easy to get excited about fascinating and promising businesses you run across, but you should aim to dig into them deeply before investing — even more so when they’re small and/or young. Hearing management’s rosy outlook isn’t enough, and touring the premises isn’t necessary. Look into the history and track record of management. Look into their books to see whether they’re turning their great ideas into profits. Look into current and possible future competitors, and weigh all risks facing the company. Even if you do all that, a company could still surprise you by imploding. Thus, it’s smart to protect your money by spreading it across a bunch of companies (or a simple and low-fee index fund) and not just a few.