Shld"Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1."
-- Warren Buffett

One of the best ways to improve your investing results is to simply stay clear of the weakest businesses. While it's true that high-risk situations can lead to high rewards, they can also result in disaster. That's because an investment in the stock of a competitively disadvantaged business can result in a large, permanent loss of capital, up to and including a 100% total loss should the business declare bankruptcy.

One company that appears to be caught in a death spiral is Sears Holdings (NASDAQ:SHLD). Once an icon of American retail, Sears is now besieged by fierce competition that's led to declining sales, huge losses, and a fire sale on its best assets.

From bad to worse
Last year was particularly brutal for Sears: The company lost $1.7 billion, or $15.82 per share. And that's after the company lost $1.4 billion ($12.87 loss per share) in 2013. These losses have taken a severe toll on Sears' balance sheet, and the struggling retailer ended its fiscal 2014 with only $250 million in cash, down from more than $1 billion at the end of fiscal 2013.

Aggressive steps at a turnaround
In order to fund its operations and improve its liquidity, Chairman and CEO Eddie Lampert has been aggressively spinning off and selling assets. Last year, Sears spun off its apparel subsidiary Lands' End, and sold the majority of its stake in Sears Canada via a rights offering. 

Most recently, Lampert and his team sold off more than 230 of the company's best Sears and Kmart stores to newly formed real estate investment trust, Seritage Growth Properties (NYSE:SRG). The move added a much need $2.7 billion in cash to Sears' withering balance sheet, but also removed one of Sears' last-remaining valuable assets, and an important source of collateral for its debt financing.

It's not enough
For all of Lampert's financial wizardry, he has yet to make any significant progress in one vital area: People simply are not shopping at Sears' stores like they have in the past.

In the fourth quarter of 2014, Kmart's comparable-store sales declined 2%, and Sears' U.S. comps fell 7%. The situation grew even more dire in the first quarter of 2015, with Kmart and Sears U.S. comparable-store sales plunging 7% and 14.5%, respectively. 

Declining comparable-store sales are often evidence of a weakening competitive position, and that appears to be true with Sears today. Wal-Mart, with its reputation for low prices, Best Buy, with its renewed focus on appliances, and Costco, with its treasure-hunt style shopping experience, all provide difficult competition for Sears. But the biggest threat of all may be the mighty Amazon, which dominates e-commerce at a time when more and more consumers are shopping online.

Together, these rivals, along with many others, have attacked Sears on all fronts and have drained its competitive moat. Besieged and battered by years of losses, Sears is aggressively selling off its best assets in order to survive. Yet that's only serving to further weaken the struggling company.

Unless management can somehow find a way to right the ship, it's looking increasingly likely that Sears may someday join the growing list of once proud, but ultimately failed, retailers like Circuit City, Borders, and Radio Shack. As such, investors may be best served by staying well clear of Sears Holdings' stock.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.