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value of the company and does not necessarily correlate with its asset value. The company's asset value is that of its cash reserves and physical and intellectual property, including patents. When the market capitalization is significantly lower than the asset value, hostile takeovers are likely to be attempted to enable asset stripping. The potential of many high-tech and Internet companies rests in intellectual property and their research and development (R&D) staff, resulting in market caps far higher than their value in real terms.

Generally, large companies and established companies in traditional and required industries are the most secure. Smaller companies and those in high-tech industries, such as the Internet, are most volatile; their stock prices are liable to rise or fall dramatically. Although smaller companies with a long history as private companies before going public are likely to be quite secure, as long as they don't try to expand too fast.

If you are knowledgeable about a particular industry, you are more likely to be able to assess companies within that field accurately, making that sector one you should select. Regardless, before investing in a company, you should do your research. Review their financial statements and study their history, such as employee and public relations. Having the stock price of a new investment fall severely due to strike action or a $100 million litigation case is not nice, especially if a little research could have avoided it. Internet search engines can provide you with a wealth of information.

You might like to consider mutual funds as an easy way to diversify; either through financial companies or listed exchange traded funds. These can be sector specific or broad-based. You might choose several sector specific in various industries you feel meet your investment requirements and/or several broad-based ones. Investigate the historical performance of the funds, their stability and returns before investing.

The best option is to invest personally in researched companies in industries you know about and spread the rest of your investment capital across several mutual funds that invest through multiple stock exchanges.

Finally, a word of caution; the stock market can go into recession, just like the economy of a country. If the decline is particularly steep, it is commonly called a stock market "crash". It is therefore prudent to diversify your capital across and within other investment areas as well, such as property, precious metals, bonds, fixed-term deposits and if you are knowledgeable about such, antiques and art.

Learn more about this author, Perry McCarney.
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