What were the 10 best stocks of the past 10 years, and what could we learn from them? Those were the questions we asked a few months back, and we discovered that the 10 best stocks of the past 10 years were:

  1. Obscure.
  2. Ignored.
  3. Small.

That's all well and good, but then we got to thinking: What were the 10 worst stocks, and what could we learn from them?

Without further ado, here are the 10 worst performers.

Company

1996 Market Cap
(in Millions)

Return, June 1996
to June 2006

1. Idera Pharmaceuticals (AMEX:IDP)

$290

(99.9%)

2. Atari

$1,230

(99.4%)

3. Viragen (AMEX:VRA)

$230

(99.3%)

4. Intrusion (NASDAQ:INTZ)

$360

(99.3%)

5. Alteon

$220

(98.6%)

6. Genelabs Technologies

$311

(98.2%)

7. Gilat Satellite Networks

$205

(98.0%)

8. HearUSA

$284

(97.5%)

9. Danka Business Systems

$2,266

(97.3%)

10. Harken Energy

$201

(97.2%)
*Data provided by Capital IQ, a division of Standard & Poor's. It should be noted that past performance does not predict future performance.

Danger! Danger!
There are a few caveats. First, these companies are all still in business and trading on major U.S. exchanges. Many publicly traded companies went bankrupt over the past decade, leaving shareholders with nothing. We also excluded companies that did not have a market cap of more than $200 million 10 years ago, to keep penny stocks out of our results.

Those qualifications aside, here's what we can conclude: The 10 worst stocks of the past 10 years were also small. And if you keep looking down the list, that's a trait that most of them share:

Company

1996 Market Cap
(in Millions)

Return, June 1996
to June 2006

11. PLC Systems (AMEX:PLC)

$417

(97.2%)

12. Iomega (NYSE:IOM)

$5,057

(96.9%)

13. PRG-Schultz International (NASDAQ:PRGX)

$366

(96.6%)

14. Web.com* (NASDAQ:WWWW)

$1,454

(96.3%)

15. Cytogen (NASDAQ:CYTO)

$413

(96.1%)
*Web.com (WWWW) was known as Interland (INLD) until March 2006.

But this also makes sense: Small companies offer the greatest risk and greatest reward in the market.

Be boring, be rational
But none of these stocks could be called obscure or ignored. While the 10 best had boring names such as Hansen Natural and Pool Corp., the 10 worst had exciting names -- like Genelabs Technologies, Gilat Satellite Networks, and Web.com -- that conjure up images of the next great technological or pharmaceutical breakthrough.

Many investors believe that buying into these breakthroughs is the key to thumping the market. (Consequently, they value them above and beyond justification.) Yet that's just not the case. As Paul Elliott noted recently, the risk with small caps may not be with the companies, but with us as investors! That's because too many of us go chasing after the next big thing, rather than systematically searching out and finding legitimate small businesses with strong fundamentals trading at reasonable prices.

Foolish conclusion
The 10 best and 10 worst stocks of the past decade were small caps. But they were very different kinds of small caps.

In our Motley Fool Hidden Gems service, we heed the lessons of the best and worst performers in our quest to find the very best small-cap businesses. While names like Drew Industries may sound drab, we think that's exactly the point. Click here to see our 60 favorite small companies with a free 30-day trial.

This article was originally published on June 5, 2006. It has been updated.

Neither Tim Hanson nor Brian Richards owns shares of any company mentioned in this article. No Fool is too cool for disclosure.