A Fan of Fans

My son is a bookkeeper for a lighting company. In 1997, he told me his company was selling Craftmade ceiling fans in such increasing volume that the fans were on back order. He said "buy." We bought some shares, and the stock then tripled in value, while product demand continued. As Peter Lynch advises, buy on inside information only when you know the real story.

— D.F., Danville. Ky.

The Fool Responds: We hope you sold the shares awhile ago, because over the past year, they've fallen by quite a bit — more than 50 percent. It is indeed good to gather stock recommendations from people with inside information, such as observations of strong sales. But there's more research to be done than that. You should still check to see how much debt the company carries and whether it has the cash to meet its obligations. It's also helpful to see where its money is coming from. If a company is selling 75 percent of its wares to just Home Depot and Lowe's, it's rather dependent on them. If they switch to another supplier, it can have devastating results.

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