In December of last year, I finally took the plunge. Roughly four years into my investing studies, I stepped beyond the fourth of our 13 Steps to Investing Foolishly -- beyond the broad market index fund -- for the very first time. And if this wasn't a big enough step, I started out in the high-risk arena, choosing a potential Rule Breaker for my maiden market voyage. Yes, dear reader, I stuck my neck out in a big way.

And less than four months later, my head was returned to me in a Hefty trash bag.

I bought shares of business software developer Ariba (Nasdaq: ARBA) at nearly $64 per share. Today it trades for around $6. Here's how badly I did my investing job: Ariba was the absolute worst-performing stock in the first quarter of 2001, among all Nasdaq-listed companies with a market value beyond $1 billion.

Yes indeed -- not merely down more than 85% for the quarter, but dead last. Numero uno -- working backward from the end. La compa��a peor. The definitive bad selection from a gigantic universe of selections. The zenith of bad stock picking. Seen a certain way, it's really quite a remarkable feat. How many can say that they've turned $2,000 into less than $200 with a single investment in less than four months?

Anybody?

So what have I learned? Well, learning never stops, but I'll give you my best three answers. First, though, I want to share a couple things that I have not yet learned from the experience:

  1. That I'm a young, impulsive, dot-com know-it-all, blindly buying hot stocks according to a flawed strategy that ignores valuation. I'm both a geezer by dot-com standards and a careful skeptic. I studied widely before branching out timidly from my index fund approach. I cut apart this company and its industry so many ways that a few poor souls began to rely on me as the expert on the topic. I spent months on my due diligence, especially valuation. In fact, it's tough to bounce a dead cat around Fool HQ without hitting one of my Ariba discounted cash flow spreadsheets. I first wanted to buy last fall, but decided (as did the Breaker team) that the company's then $30 billion market cap was too rich. At $15 billion, where I bought Ariba, at least a dozen or so of my spreadsheet models told me it was a steal.

  2. That I should have bought a basket of B2B stocks instead of choosing just one. True, this strategy would have lost me less money in this particular case, but in general it's a loser in the world of Rule Breaker investing. The hallmark of any important, emerging industry is a gaggle of absurdly over-priced pretenders to the throne. Buy them all, and you're sure to take a bath. Only by picking the eventual king -- the one that actually survives, drives the others out of business, and turns out to have been absurdly under-priced -- can you win the high-risk game.

In summary, there is no easy way to investing success and no guarantee that "due diligence" will protect your booty. But I think I knew that coming in. Here are three things I didn't know:

  1. Unless you have insider contacts or work in the business, stay away from companies that rely heavily on business capital investment in technology. Business budgets are significantly more volatile than consumer budgets. When times are slow, capital investment in business development disappears, at least relative to the parallel shift in consumer behavior. Moreover, the most high-tech of these business-development-related goods are the most severely punished by a macroeconomic time lag, since their "cutting-edge" solution can be made obsolete at any moment, before they gain a competitive advantage based upon switching costs. It's impossible enough to time economic cycles; trying to judge the true momentum of a big-ticket business purchase market is even tougher.

  2. If you decide to ignore lesson one and buy stock in a business technology provider, never underestimate the importance of partnerships and alliances. In my case, I wasn't worried enough about the relentless expansion of onetime alliance partner i2 Technology (Nasdaq: ITWO) into Ariba's home turf.

    I'm not convinced that -- as many have claimed -- the lack of an in-house direct-purchasing product line hurt Ariba all that much. The plan all along was for Ariba to be an indispensable, economically efficient B2B hub, partnering with the innumerable spokes, just as Microsoft (Nasdaq: MSFT) has traditionally partnered profitably with third-party software developers. Agile (Nasdaq: AGIL) was billed, from the beginning, as an important partner in the Ariba Commerce Services Network. Why own them?

    BUT, when one of the spokes decides it wants to be the hub, that's a problem. Especially when it's an established industry leader like i2. Its strong move into the procurement software market -- along with the new procurement option from the combined SAP (NYSE: SAP) and Commerce One (Nasdaq: CMRC) -- cut deeply into the onetime momentum behind the Ariba Buyer platform as the standard hub for all of B2B.

  3. Trust your instincts. While I never believed that the "Internet marketplace" software business would amount to much (after all, the whole point is that the Internet is the marketplace), I did factor in significant future revenue growth from the Ariba Commerce Services Network -- the convenient network of purchasing services tied into the Ariba Buyer application.

    Nonetheless, I always wondered how much of reported "network revenues" were really coming from recurring profit-sharing arrangements with commerce services providers. Ariba repeatedly assured us that the contribution was significant and growing rapidly. Looking back, I was right to be suspicious. It makes sense that the economic slowdown would temporarily gut Ariba's software sales, but it doesn't make sense that services revenue from indirect purchasing would essentially disappear. Moreover, Ariba appears to have written off any future revenue contributions from this network.

    Bottom line: This network-revenue line was simply too crucial to the entire Ariba economic model to have accepted its existence on blind faith.

As I reflect on my entire experience, one thing is top of mind. I've been writing over and over, since I started this job, that I never want to be anybody's stock picker. Fool writers are fundamentally educators, not analysts. Yet I still hear from readers that this is an insincere sentiment -- that stock picking is ultimately what I offer, like it or not. At this point, then, allow me to add that I now have some data to back up my claim.

One more time, with all the sincerity I can muster: Please don't mimic us.

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In other Breaker news, Human Genome Sciences (Nasdaq: HGSI) sent another drug into clinical trials yesterday. Jeff Fischer covered the event for Fool News. Jeff also covered Amazon's (Nasdaq: AMZN) new PC store initiative and the poor quality of the media's discussion of it.

Paul Commins wants to assure regular readers that his recent absence from this Breaker space is not in any way related to his poor stock-picking record -- at least as far as he knows. While Paul's entire portfolio is always up-to-date online, he suggests that anybody crazy enough to be looking for stock picks consult one of his fellow investors writing for investors.