Top 10 Biggest Investment Failures Ever

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Pets.com sock puppet spokesdog.  (Photo
Ann Summa/Time Life Pictures/Getty ImagesThe Pets.com sock puppet has become synonymous with the dot-com bust.
As an investor, you need to be smart about where you're putting your money to work. Investing your hard-earned cash in companies that won't use it well -- or in products that haven't proven themselves -- can quickly come around to bite you. Case in point? These 10 famous examples of investment gone horribly wrong:

1. DeLorean Motor

Marty McFly's time-traveling adventures weren't the only juicy story featuring the futuristic DeLorean. The inventor of the car with cool side-opening doors from "Back to the Future" was caught on tape during an FBI sting declaring the suitcase of cocaine he planned to sell was as "good as gold." The cocaine, worth $24 million, was John DeLorean's last-ditch attempt to save his floundering company from financial ruin. This (combined with charges of defrauding his partners) lost all trust he had with investors. The firm filed for bankruptcy in 1982. (An unrelated company using the same name services the 9,000 cars made.)

2. The Dutch Tulip Craze

In the 1630s, the Dutch were flying high on the flowers recently introduced from Turkey. Tulip bulbs became a highly sought-after commodity, with one bulb going for the equivalent of an entire estate. Many investors got so excited that they sold everything they had to get in on the deal. But, like any craze, tulip mania came to an end. As more people started to grow tulips and prices began to lower, investors raced to sell, resulting in an economic depression that still serves as a warning today.

3. Charles Ponzi

The famous swindler, whose name is now synonymous with scams, did his dirty dealings back in the 1920s. Cashing in on people's desire to get rich quick, Charles Ponzi wasn't the first to run a pyramid scheme, but he was the first to get so good at it people took notice. His racket involved enticing investors to buy discounted foreign postal reply coupons, which they could redeem at face value for U.S. postage stamps. Using money from new investors to pay existing investors, Ponzi pocketed millions for himself before the whole thing collapsed, costing investors around $20 million.

4. Bernie Madoff

Speaking of Ponzi schemes, former Wall Street stockbroker Bernie Madoff was behind one of the biggest in U.S. history. For decades, his investment firm defrauded its clients, fudged the numbers and cost an estimated $20 billion to investors. Pleading guilty to 11 federal felonies -- including securities fraud, investment fraud and money laundering -- Madoff is the prime example of investing gone horribly wrong.

5. Washington Mutual

The biggest bank failure in history, according to assets, Washington Mutual won its spot in the list of infamy when it went out of business and was purchased by JPMorgan Chase (JPM) in 2008. Once the sixth-largest bank in America, it fell the furthest during the subprime lending fiasco, resulting in its seizure by the Federal Deposit Insurance Corp. and bankruptcy. Total lost assets? Around $300 billion.

6. Enron

Energy, commodities and services company Enron seemed to be on top of the world. With (claimed) revenue in the hundreds of billions, it was consistently named "America's most innovative company" by Fortune -- until it came to light that its success was based on fraudulent reporting. It hid massive debts from its balance sheets. Now one of the best-known examples of corporate fraud, greed and corruption, Enron lost its shareholders their retirement accounts, their jobs and $74 billion.

%VIRTUAL-article-sponsoredlinks%​7. Lehman Brothers

Global financial services firm Lehman Brothers is another example of shaky reporting (to put it kindly). It hid more than $50 billion in toxic assets in the Cayman Islands from its balance sheets by disguising them as sales, making them look instead like $50 billion in cash. When the subprime mortgage crisis hit in 2007, Lehman Brothers was forced into bankruptcy and acquired by Barclays (BCS) and Nomura Holdings (NMR).

8. Premier Smokeless Cigarettes

Long before today's e-cigarette trend, R.J. Reynolds Tobacco (RAI) attempted to eliminate some nasty side effects of smoking with its Premier smokeless cigarette. This "nicotine delivery device," made to look like a cigarette, flopped when it was found to have a horrible charcoal aftertaste and to be a convenient method of delivering substances other than nicotine to smokers. Less than a year after its 1988 release, it was pulled from the market -- after costing nearly $1 billion to develop.

9. Pets.com

It had an adorable sock spokes-puppet and a ton of high-profile commercials, but Pets.com didn't manage to cash in on the dot-com bubble. The online pet supplies retailer rapidly gained attention with spots on the Macy's Thanksgiving Day Parade and the Super Bowl, but with no solid market to purchase the products it advertised, it quickly found itself losing money. In spite of $300 million in investment capital (largely spent on advertising), it failed after two years.

10. WorldCom

Once the second-biggest long distance phone company in the U.S., WorldCom (also known as MCI WorldCom) was once seen as one of the great telecom success stories of the '90s. But when it tried to continue its growth-by-merger strategy by joining with Sprint (S), it was blocked by regulators as an attempt at monopolization. When it came to light that CEO Bernie Ebbers was financing his other businesses with personal loans from his WorldCom stock (to the tune of $360 million), things unraveled further. WorldCom filed for bankruptcy in 2002, resulting in an $11 billion loss to investors.

Paula Pant ditched her 9-to-5 job in 2008. She's traveled to 30 countries, owns six rental units and runs a business from her laptop. Her blog, Afford Anything, is a gathering spot for rebels who refuse to say, "I can't afford it." Visit Afford Anything to learn how to shatter limits, build wealth and live life on your own terms.

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Top 10 Biggest Investment Failures Ever
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much? 
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.  
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back." 
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.    
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more. 
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt. 
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.
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