Three Things to Consider Before Investing

MILLBURN, N.J. (TheStreet) -- Do you really know the company that you are investing in? Most investors look at the financials or the stock charts of a company. Perhaps they visit a company's retail location or try its products. But they overlook or disregard many other important, often intangible factors. In this installment of The Finance Professor, I'll point out a few of them.

1. Line of Business

Do you know how your company generates its revenue and earnings? Most people generalize or categorize the company's business model. You need to dig a little deeper. Most people still think that International Business Machines(IBM Quote) makes most of its money from mainframe and personal computers, but IBM sold its personal computer division to Lenovo several years ago. As for mainframes, that is a small part of the revenue stream at IBM. The company only generates about $1 in every $6 from systems sales. The lion's share of its revenue comes from software and support.

I own Olin(OLN Quote). What led me to Olin was its core business of chemical products. I was searching for exposure to chemicals. What really intrigued me was that about 35% of Olin's revenue comes from the sales of Winchester firearms and ammunition. I got a twofer, because I was also seeking out exposure to guns and ammo to play the an ammo shortage in this country right now. Those looking for an investment in chemicals only might have been deceived by Olin.

2. Second Generation Syndrome

Did you ever notice that after a founder leaves a company, very often the next generation of management does not perform as well? There have been many articles and academic studies on this subject. In general, successor CEOs do not perform as well as their predecessor founder CEO.