Sometime I feel scared not because of risk I take in stocks but because of misleading information companies provide out there. No investor can do anything about it. In USA where laws are very strict there has been accounting scandals all the time including those from fortune 500 like Enron and Tyco but I still feel little confident about maturity of that market.

When coming to India things are very volatile. We all know how much a common Indian cares about Laws and if one has influence ,political power and money there is hardly any law out there.

Why did satyam got caught after doing it for 10 years ? They tried to do it over and over and the size of scandal was huge. But we all know somewhere in our heart that there are many other companies out there who is telling lie about those robust growth, they are playing with stock market to report numbers that please investors. Promotors along with brokers drive the prices of these stocks to heights.

The real problem is that these accounting tricks and scandals can go for long time without being caught and hence some one who knows about it can not short that stock and get burned.

In case of Enron there were brokers and analysts who smelled what's cooking and made huge money by shorting Enron stocks because they were confident ultimately all of these will unearth.

One can not do that with Stock of Satyam in India. Satyam can escape for 10 years , no one can afford to wait for that long for its short bet to work. There has been reports of possible fraud at educomp http://infotech.indiatimes.com/articleshow/4011557.cms

Now key question , how can a common investor stays away from these mishaps. Here are some common rule to follow ..

1. Try to invest in a company of only A and B group. Sometime investors get attracted by penny stocks based on story that one stock went from Rs 5 to Rs 500. Let me tell you ..no single person kept that stock from 5 to 500. Even if you had invested at Rs 5 you would not have made that much money. secondly it's not worth the risk.

2. Invest in companies whom you can see. I mean not seeing their office building but you see some of their products out there. For example invest in a biscuit company whose product you see in grocery store or buy a hotel stock whose hotel you see on highway. That confirms that at least that company have some business. Stay away from financial services , pharma and IT companies whose name you never head of.

3. Try to pick something related to your own occupation. If you are a steel trader , you know companies in steel ..Tata, Jindal ..etc or something in pig iron space ..or any other commodity stock. If you are an IT guy you know more about IT companies.

4. Try to read profit and loss statements of companies. These days this information is available online easily. If you see something strange. For example a company whose revenue was 1 lakh last year and this year it grows to 100 Cr. There is something fishy .

5. Don't listen to everyone about how much they made on a stock.It's enticing . But let me tell you, not everyone tells the truth. Betting money this way is a simple gamble. Why not buy lottery ticket in that case.

6. Even if you bought a stock and now feels that made wrong decision , don't waste time and get rid of it immediately.