When you lose hundreds of thousands of dollars, primarily due to your own stupidity, there isn't much solace. Believe me on this -- because I'm someone who lost that much (and more -- but I don't want to make this any more painful). Still, I think I'll feel better about it if I can prevent a few people from making some of the same mistakes I did.

So let me back up a bit. The year was 1999, and along with Prince, I was doing a lot of partying (in my head) every time I looked at my portfolio. And that was often every few hours! When your portfolio skyrockets over a very short period, it does things to you. You get a little giddy. You keep checking your portfolio's value -- partly to reassure yourself that your good fortune is real, and partly to see by how many more thousands of dollars your wealth has grown while you were in an hour-long meeting.

What I did
In mid-1998, I'd bought roughly $6,000 worth of stock in Amazon.com (NASDAQ:AMZN). In just 18 months, it had increased in value 10-fold (and then some). My brokerage statement from November 1999 shows that my 900 shares (thanks to numerous stock splits) were priced at $93 each, totaling more than $83,000! That's all from a $6,000 investment.

Then there's Sun Microsystems (NASDAQ:SUNW). My 1999 statement shows 200 shares at $136 each, for a total value of $27,000. I had paid $4,000 for them a mere two years earlier.

These are just some examples from my portfolio. My biggest holding at the time was America Online, which is now Time Warner (NYSE:TWX), and I once watched that one increase from a $3,000 stake to more than $200,000!

The mistakes I made
I don't need to tell you what happened to these holdings in short order. Within a year, my Amazon shares were below $30, and my $83,000 had become $27,000. My Sun shares held their value and even increased for a while, but within three years, they'd fallen by some 87%. My America Online shares fell from close to $100 per share to about $13 in three years.

How did I get into this mess? Well, here are some of my mistakes:

  • I bought many stocks without really understanding much about their business. I was fairly familiar with America Online and Amazon.com, because I was an avid customer. But I couldn't tell you much about Sun Microsystems -- or Cisco Systems (NASDAQ:CSCO), or other companies like that.
  • I was following the herd. I saw others making money on this or that stock, so I piled on; I didn't want to be left out.
  • I didn't focus on valuation much at all. When these companies became wildly overvalued, I didn't notice -- or maybe I didn't want to know -- I don't really remember. (Actually, I may have noticed but hung on out of greed, hoping to eke out a bigger profit before selling.)
  • I succumbed to emotions and inertia instead of being rational. My stubborn streak led me to want to emerge victorious, eventually proving myself right for hanging on. My lazy side rationalized that what goes down will probably come back up again. (That's often true, but at what cost, and did I really want to wait many years to regain what I lost?)
  • I didn't listen to the rational voices around me, like my mom, who urged me to at least sell off portions of my holdings.

That's just some of my wrong-headed thinking.

The bright side
Fortunately, this isn't purely a tragedy. For one thing, I learned lots of valuable lessons. I no longer hold Sun Microsystems (and others), because I still don't really have a good grasp of its business. I do still hold Amazon.com and Time Warner (though I've sold off most of the shares over time, for a down payment on a house, among other things).

I've also still made money, even after these stocks' slides. My few remaining Time Warner shares have grown some 20-fold since I bought them (though they were once nearly 100-baggers!). My Amazon.com shares are up almost five-fold from their purchase price back in 1998. Even though in total I lost more than $200,000, I can't complain too much. Many others lost much more than that.

I also did some things right during all this. I'd come to greatly respect Warren Buffett (even though I wasn't heeding his investing advice, to my detriment), so I bought a few shares of Berkshire Hathaway (NYSE:BRK-B) in 1998 for about $1,800 each. They've roughly doubled now, at more than $3,500.

How I invest now
So how am I investing, now that the bubble has burst and I learned a few lessons? Well, one more thing I learned was that I just didn't want to spend loads of time studying stocks and their valuations. I'd rather let those who love it do it for me. This is kind of what Berkshire Hathaway is all about -- there, none other than Warren Buffett and his cohorts are investing money for me. My capital invested in Berkshire was preserved during the market drop, too.

So I've got a lot of my money in mutual funds now, a bunch of which I found through our own Motley Fool Champion Funds newsletter, which is led by Shannon Zimmerman. With good mutual funds I get instant diversification, which helps me avoid wild swings -- and the smart managers often find lots of promising companies that I may know nothing about.

One of my holdings, which is typical of the kind that Shannon zeroes in on, is the Dodge & Cox Stock Fund (DODGX). Top holdings of the fund include Comcast (NASDAQ:CMCSA), Time Warner, Hewlett-Packard (NYSE:HPQ), and Pfizer (each makes up 2.75% or more of net assets).

Although the fund is closed to new investors, it's the type of fund you should be looking for. Its average annual return over the past 10 years is 14.2%, its expense ratio of 0.52% is very low, and most of the management team has been on board for more than 10 years.

If you'd like to see which funds have gotten Shannon's blessing, I invite you to test-drive his newsletter -- for free and with no obligation -- for a full month. During that time you'll have full access to all past issues, so you can read about each recommendation in depth. On average, Shannon's picks are beating the market by a full 13 percentage points.

Here's hoping my lessons can teach you some of what they've taught me!

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Longtime contributor Selena Maranjian owns shares of Time Warner, Berkshire Hathaway, Amazon.com, and the Dodge & Cox Stock Fund. Time Warner and Amazon.com are Motley Fool Stock Advisor picks. Berkshire Hathaway and Pfizer are Inside Value choices. The Motley Fool is Fools writing for Fools.