Let Me Be Your Horrible Warning

"If you can't be a good example -- then you'll just have to be a horrible warning."
--Catherine Aird

I would love to be a good example of smart investing, I really would. And in some ways, I suppose, I am. I've made much more money than I've lost, after all. I once turned $3,000 into $210,000, and I also turned a series of small investments into enough for a down payment on a nice house.

But in some ways, I'm more of a horrible warning. I once lost $200,000, after all -- and that wasn't my only mistake.

Learn from me
How, exactly, did I lose so much money? Let me count the ways.

• I overdiversified. I've spread my investments too thinly and ensured that while one investing dud can't torpedo my portfolio, neither can an investing star improve it. For example, I put less than 2% of my portfolio's value in Intuitive Surgical (NASDAQ:ISRG). It's been a stellar performer. It tripled in about a year before pulling back in the market upheaval, to what still amounts to a 70% gain. But even when it was a rocket, it never made much difference to my overall portfolio.

• I bought companies I didn't understand. I've bought companies that dealt in semiconductors and specialized software and cures for cat allergies -- and I'm still tempted, on occasion, to do it again. I've been thinking about buying Jacobs Engineering, for example, which "provides a range of technical, professional, and construction services to a large number of industrial, commercial, and governmental clients around the world," because I've been impressed with its growth rates and past performance. But I don't have a good grasp of the industry, its position, or its prospects. This time, I'm going to pass.

• I hung on way too long. Years ago, Time Warner (NYSE:TWX) was a 70-bagger for me -- but it had far surpassed its intrinsic value. I was greedy and didn't sell, in hopes that it would go up still further. When I sold, I had a 10-bagger on my hands. It was still an excellent return, but I left a lot of money on the table.
  
• I gave in to simple, sloppy thinking. When Time Warner, for example, had fallen from around $70 per share to around $15, I figured it couldn't fall much further. That was dumb -- a stock's price reflects what people will pay for it, based on what they think it's worth, and nothing else. Last time I checked, it was just south of $10 per share. Gut feeling does not an investing thesis make.

What you should do
In addition to avoiding the mistakes I listed above, how should you invest? One strategy is to consider blue-chip dividend payers.

They may have a reputation as safe plays that won't net you big gains, but if you're truly a buy-and-hold investor, they'll pack a punch. According to Wharton Business School professor Jeremy Siegel, in the period from1871 to 2003, 97% of the after-inflation stock returns came from reinvesting dividends -- only 3% came from capital gains.

And in a volatile market like this one, companies with a sustainable dividend can help prop up your portfolio until prosperity returns. All of the companies below, for example, have increased their dividends every year for at least 20 years -- and that's a good indicator of their long-term prospects.

Any investment requires more research than just looking at the dividend yield, but a history of strong dividend payments is a good place to begin.

The Foolish bottom line
I've been both a good example and a horrible warning -- and I must say, I prefer being the former. So I'm avoiding the mistakes that made me a horrible warning and focusing on companies I understand -- especially dividend payers.

If you'd like some pointers to a bunch of promising dividend payers, I invite you to test-drive, for free, our Motley Fool Income Investor newsletter service. Its recommendations have been beating the S&P 500 by several percentage points on average, and those picks sport an average dividend yield of more than 6%. Just click here for your free trial -- it will give you full access to every past issue with no obligation to subscribe.

Longtime Fool contributor Selena Maranjian owns shares of Time Warner, Intuitive Surgical, Coca-Cola, Johnson & Johnson, and 3M. Pfizer and Johnson & Johnson are Motley Fool Income Investor selections. Pfizer, 3M, and Coca-Cola are Inside Value selections. Intuitive Surgical is a Motley Fool Rule Breakers pick. The Fool owns shares of Pfizer. The Motley Fool is Fools writing for Fools.