Slippery Slope

A guy kept calling me about investing in a ski resort in upstate New York. He said, “How could you lose? You are investing in a mountain.” I lost the entire investment— and learned not to listen to anyone pushing stocks on the phone or via flyers in the mail. — Don K., Edinboro, Pennsylvania The Fool Responds: You got cold- called, which is rarely a great way to find outstanding investments. Any investments that are so terrific wouldn’t need salespeople to push them— those in the know would be snapping up all available shares. And, of course, you weren’t investing in a mountain. You were investing in a business. It probably wasn’t a publicly traded one, with shares of common stock trading on the open market and an obligation to regularly file audited financial reports with the Securities and Exchange Commission that are publicly available. Instead, it might have been a limited partnership or some other structure, which can be complicated, tax- wise and otherwise. You probably didn’t get a chance to look at its books and see how profitable it was ( if it was indeed profitable) and how quickly its revenue and earnings were growing ( not to mention its debt load and accounts receivable). Before investing in any company, public or private, you need to understand the company’s strengths and weaknesses, its risks and opportunities. You need to be reasonably confident the potential benefits outweigh the risks.