Few new technologies seem to generate as many headlines these days as nanotechnology, the field of building things at scales of billionths of a meter.

Major breakthroughs are coming at a torrid pace. Earlier this month, researchers in Texas and Australia reported success on an experiment to build carbon nanotube sheets they believe could be of use in the technology industry. Meanwhile, scientists in San Diego and South Carolina developed nano-scale structures that can function as electrical switches.

The good news for potential first-time nanotech investors isn’t limited to the labs. Nanotechnology has been a big disappointment in the market, so far at least, so the price of admission to this high-risk but intriguing sector is relatively low right now.

An index of nanotechnology stocks launched by Merrill Lynch last spring has shed about a quarter of its value in the past 10 months. Initial public offerings also have fared poorly. A much-anticipated offering from Nanosys, a Silicon Valley firm with a large portfolio of nano-related patents, didn’t make it to market as planned last summer.

It may seem counterintuitive, but the lackluster market conditions may be a good thing for investors who haven’t already sunk a lot of money into nanotech. After all, the worst time to buy a stock is at its peak, and current valuations aren’t consistent with a market top.

So, if the fear of nano-sizing your wallet hasn’t already put you off, take a look at this short guide that will show you where to look and what to watch for when choosing nanotech investments:

Separate science from science fiction.

Forget futuristic visions of a world run by self-replicating “nanobots” that do our every bidding. Real-world companies are for now involved primarily in developing novel materials, such as coatings, that can be used in industrial and consumer products. These types of products are most likely to make it to market in the short run.

“The concept of self-replicating molecular machines is science fiction,” said Darrell Brookstein, an investment adviser and author of the book Nanotech Fortunes. “It’s not a matter of waiting 30 years to develop them. They’re never going to develop.”

One area to watch in particular is photoactive plastics, nanoscale material capable of generating an electrical charge from light, said Matthew Nordan, vice president of research at nanotech consulting firm Lux Research. One prototype plastic, developed by Massachusetts startup Konarka, is under evaluation by Nokia (NOK) to recharge handsets, Nordan said.

Look to the long term.

Research-intensive fields such as nano-electronics will take years or even decades to evolve into commercial products and profits.

Tom Theis, director of physical sciences at IBM research, estimates that the typical time lag from lab discovery to commercial deployment is 10 to 15 years for hardware. By way of example, he cites the discovery in the late 1980s of a phenomenon called the Giant Magnetoresistive Effect, or GMR, in which scientists saw large resistance changes in materials comprised of thin layers of various metallic elements. It took 10 years for IBM to incorporate GMR into hard drives for desktop computers.

By Joanna Glasner

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