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Feature Article: Can You Avoid Bad Investments?
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One month later and the gloom and doom continues. Accounting scandals are the latest reason cited for poor market performance. However, what is important to recognize is that no matter how hard you try or how much you know, investing is not an exact science. In your lifetime you are going to make investment mistakes. Both Warren Buffett and Peter Lynch have consistently stated that if an investor is accurate 30 percent of the time, he/she will succeed financially. These two great investors are also quick to point out that they have made many investment mistakes over their investing careers.

Here are seven things to remember when you start to worry about your investments:

First, stay in the game. Although, the gloom and doom crowd would have you believe that the world is ending, there is no scientific evidence that anyone has ever been able to consistently beat a buy-and-hold strategy over the long term. In fact, many of these Armageddon peddlers were advising people to not invest in the stock market during the 1980s and 1990s. If you consistently proclaim the stock market is going down, you will be right about one-third of the time. However, you will be wrong two-thirds of the time.

Second, do not let any one investment ruin your investing career. Since it is not possible to be absolutely sure about the success of any one investment, make sure you are diversified and do not have more than 10 percent of your total assets in any one company or industry. Real estate investment trusts (REITs) and small stocks are two market sectors that were ignored by investors in the 1990s. These sectors have held up very well during recent months and generally do much better during difficult market environments.

Third, buy quality companies with business models that you can understand. I cannot emphasize this enough. Enron's business model was very difficult to understand. Tyco and WorldCom operated companies that used acquisitions to boost profits. Stick with what you know. If you invest mostly in mutual funds, make sure you have confidence in the fund manager and their track record is good in both bull and bear markets. 

Fourth, avoid companies with lots of debt. If a company's debt exceeds its assets, tread carefully. High debt loads can cause tremendous financial strain on a company in a difficult business environment.

Fifth, be patient. Rome was not built in a day, and your financial nest egg will not be either. 

Sixth, do not invest money in the stock market that you will need in less than five years. This is a mistake many people have made recently. The stock market is too volatile over the short term to depend on for current income. Money that you will need to live on over the next five years should be invested in more secure investments like bonds (not junk bonds!) or money market funds. If you follow this practice you will probably not care nearly as much when the stock market declines from time to time. 

Seventh, continue to invest. If you have the money, the best time to invest is usually when everyone else is scared. Most stocks are currently being sold at a 50 to 75 percent discount.

During every major market downturn, investors that were patient, diversified and bold enough to continue to invest were well rewarded when things improved.

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Company Profile: Burlington Northern/Santa Fe (BNI)
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If you are looking for a stable, safe investment, consider BNI. BNI was formed several years ago when Burlington Northern Resources merged with Santa Fe. 

Railroad stocks are rarely discussed in most financial circles, but as highways become more crowded and real estate gets more expensive, railroad stocks look well positioned over the long haul. BNI is the second largest railroad in the United States. As the economy picks up, railroads will likely benefit. While most stocks have been declining, BNI is actually up for the year. BNI is certainly not a stock that will double in a year, but if you want stability in these uncertain times, railroad stocks have usually delivered.

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Questions and Answers
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Last month I asked: Are emerging market funds too risky for the average investor?

Emerging market funds are mutual funds that invest in emerging markets like China, India, South Korea, Mexico and many other smaller markets. These funds are usually extremely volatile due to the instability of these young markets and lax accounting rules. If you are young and can withstand a lot of volatility, having five percent of your assets in an emerging market fund that invests in multiple emerging markets may make sense. These markets look poised for solid growth over the next several decades as these countries become more industrialized. Before you invest, make sure you check the track record of the fund manager. The fund manager should have a superior investing record for at least five years (10 years is even better), and a solid investing style that meets your tolerance for risk.

If you have an investing question, email me at: rogue_report@rogueinvestor.com/?subject=monthly_question.

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Disclaimer: There are no guarantees in investing. I make no assurances regarding the investment information presented in the Rogue Investing Report.

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