When 'Buy What You Know' Doesn't Pay

This column was originally published on Street Insight on Dec. 12 at 9:05 a.m. EST. It's being republished as a bonus for TheStreet.com and RealMoney.com readers. For more information about subscribing to Street Insight, please click here.

In October, when I offered my list of the five worst-managed companies in the U.S., I also had considered several other companies for the honor. But I decided to create a separate list (four companies and one sector) with one thing in common: They have great products, but are bad investments.

We've all heard the Peter Lynch mantra: "Buy what you know." Buying what you know, however, doesn't excuse you from properly researching a company. Just because a company makes a fine product doesn't mean it's not managed poorly or heavily dependent on a single product or subject to a host of other maladies that could singe its stock.

My list could be longer, and you may have your own favorites. Also, note that these are bad investments but could be a decent trade from time to time. Here they are:

1. TiVo(TIVO Quote): This is the quintessential great-product, bad-investment company. Six years ago, I told my wife that we had to buy a TiVo, and she had no idea what a TiVo or DVR was back then. Six years later, we can't live without it. In fact, we still have the original box and lifetime subscription that we originally purchased.

You would think that TiVo had a great concept and would be printing money. Not so. By far, TiVo is the best example of how to screw up the concept of giving away razors and making customers pay for the razor blade. Since going public (and now for 31 consecutive quarters), TiVo has posted a loss. The most recent quarter was the same old story: more losses; litigation issues; fiddling with subscription packages; and delays in collaborative agreement. Buy a TiVo but not TIVO.