Zillow (Z) (ZG) is well known as the website for estimating home values. They have virtually no competition in that space. However, they decided that it would be a good idea to start buying property and get into the buying and selling of real property.

They lost $330 million in the most recent third quarter and decided to exit the business laying off 25% of their employees while the stock price fell sharply. This is a great lesson to learn. Zillow had no expertise in real estate other than establishing values on property.

If you owned a piece of property and checked Zillow for value, you would know their numbers were in the ballpark yet were not very accurate. That does not translate to the knowledge of the real estate business. They also failed to recognize the dangers of peaks and valleys in real estate values.

The lesson here is when you, the investor, evaluate a prospective stock to invest in, make sure management of that company understands the business and is profitable.

When management strays from their core business, you need to ask do they have the knowledge to do that? Should you invest in that company when they move away from what they do best?