A cursory look at Wall Street's current performance statistics shows that the Dow Jones industrial average has been in record territory of late, even hitting that psychologically important 12,000 level.

However, lest you become too intoxicated with unbridled enthusiasm, remember that there have been great times, good times and some not-so-good times when it comes to investing. Nonetheless, over the years I have reached the conclusion that it is more difficult to lose money investing in stocks than it is to make money.

Many investors and investment advisers take what they think is the easy way out -- they advocate index funds. To quote an old Wall Street adage, you cannot beat the market by buying the market.

Yes, in the long run the markets will move ahead and therefore so will index funds ? after fees of course. Furthermore, index funds are a step, albeit a small one, above buying mutual funds, an investment avenue fraught with higher fees, higher risk and less return than buying individual stocks.

Virtually anyone can invest successfully. There are literally dozens of well-known, high quality blue chip companies with a long history of earnings and dividend growth with which anyone can build a solid portfolio using a deep discount brokerage house. You will not become another Warren Buffett but you will enjoy steady investment gains over time.

While companies such as Exxon Mobil, Bank of America, Procter & Gamble, Harley-Davidson, General Electric, Wal-Mart, Home Depot and Starbucks are not going to grow as fast as they used to, stocks of that ilk should be the bedrock of every portfolio. I even like Intel despite the downgrades it has suffered.

With your foundation in place, you can move on to some high quality small-cap companies that will enable you to achieve higher returns in a somewhat shorter time period, keeping in mind that risk and return go hand-in-hand.

Small-cap companies, those companies whose market capitalization -- the number of outstanding shares multiplied by the share price -- is less than a billion dollars, are popular because they are the race cars of Wall Street. They can shift gears and change direction with a minimal effort as they find holes in the pack that others have not seen or cannot fit into.

Nonetheless, any small-cap strategy is not without risk. Research data is less abundant and the punishment for not doing your homework can be quite severe.

This week we will once again review some of the pitfalls of small caps. Then, at the request of numerous readers, over the next several weeks we will explore some solid small-cap companies with investment potential.

In dealing with small caps, you want to look for companies that excel at keeping costs low and have a solid strategic plan designed around a patented core technology, or a highly visible brand.

Always investigate a company's relationship with its suppliers. Suppliers that readily advertise their relationship with a company are happy suppliers. Fears regarding a company's relationship with its suppliers, regardless of validity, often will lead Wall Street to over-discount a company's stock. The same logic applies to customers.

Are there any signs of acrimonious behavior or discord among the executives? This is more prevalent in small caps as founders often are forced to relinquish control to more experienced management. While it might be to your advantage in the end, remember that successful small caps are always subject to being acquired.

One problem often found in small-cap companies is a lack of sufficient capital. You need to scrutinize the financials of any company, but this is especially true of small caps.

At a minimum, you should read past financial press releases. Look for unexplained changes in financial accounting measures, such as margins. An increase in margins usually will signal an increase in share price. However, any accounting change begs for more in-depth analysis. If you cannot do it yourself, get some assistance.