The wrenching bear market of the last three years has washed away a lot of money. Unfortunately, it hasn't wiped out the ability to make investing mistakes.

That means you. And that means me.

I constantly go back and revisit things I have written and said. And there are definitely some mutual funds I've talked about in the past that turned out to be failures. But both you and I can learn from my mistakes. Here are two of my biggest blunders, and what you should avoid when picking funds in the future.

Smith Barney Aggressive Growth

About a year and a half ago, the

(SHRAX) - Get Report

Smith Barney Aggressive Growth fund was a hard one to ignore. It had produced excellent returns throughout the late '90s, and it hadn't crashed along with the market. In fact, the fund was one of the best-performing large-cap growth funds in 2000 and 2001.

Considering that the vast majority of aggressive funds had fallen on hard times, this fund's performance was miraculous. Unfortunately, it also wasn't sustainable.

When a fund dramatically outperforms all other funds in its category over a year or two, it almost always means the manager was taking higher-risk, concentrated bets in one or two sectors that just happened to be hot. A fund cannot do that by being diversified. And when that part of the market craters, the fund could blow up.

This Smith Barney fund did just that. In the middle of 2001, the fund had about half of its money in health care and technology -- with a sizable position in biotech stocks like

Chiron

(CHIR) - Get Report

and

Genzyme

(GENZ)

. And almost half its assets were in its top 10 holdings. The fund's gravity-defying act failed in 2002 when biotech stocks collapsed. It fell almost 33% that year -- performance that ranked in the bottom 20% of its category.

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This fund's downfall doesn't mean that manager Richie Freeman suddenly became a bad stock picker -- although he has owned

Tyco

(TYC)

for years. But the fund's surprisingly good performance as the rest of the market crumbled obviously wasn't sustainable, especially with a big position in a notoriously volatile sector. I should have known that back then.

ABN Amro/Veredus Aggressive Growth

I stumbled upon the

(VERDX)

ABN Amro/Veredus Aggressive Growth fund more than a year ago. And it turned out to be a terrible investment.

This small-cap growth fund had had a superb 1999 -- like so many other aggressive funds. And it had also done well in 2000. But the fund's performance had weakened in 2001, so it wasn't exactly on a hot streak at the time. That was a good thing.

Plus, the fund wasn't expensive. And the managers had what seemed like a well-reasoned strategy. But last year the fund fell off a cliff. It dropped 44%, ranking in the bottom 5% of all small-growth funds. Their strategy just seemed to stop working.

The first tip-off of impending doom should have been the fund's high turnover ratio. Frankly, that's usually something you want to avoid. A high turnover ratio tells you that the managers are buying and selling stocks frequently. And a strategy that involves a lot of trading is hard to execute consistently. Small-cap growth managers do tend to have quick-trigger strategies. But this fund's turnover was higher than the average for its category.

And the fund's approach involves screening for small companies that are beating analyst profit estimates and also experiencing upward revisions in those earnings estimates. A strategy like this means you're looking in the rear-view mirror to see what's

been

happening, and it may not really tell you what's going to happen in the future.

And these screens can sometimes just stop working. And that seems to be part of what happened to this fund last year. It appears that the fund was buying some hot, expensive stocks at exactly the wrong time.

And that's something you want to avoid whether you're investing in stocks or funds.