For anyone who believes in the school of hard knocks, the last couple of years in the money management business have been a real education.

From the tech collapse to accounting frauds and bankruptcies, mutual fund managers have encountered a string of horrors that few people could have predicted.

Not many can get their money or pride back. But some of the brightest managers have learned or remembered some valuable lessons.

Get ready to take some notes.

Ron Muhlenkamp: Watch the Stock Price for Bad News

After 34 years in the financial services business, Ron Muhlenkamp is a human catalog of investing maxims and morals. And the past few years have reminded him of some valuable lessons he's picked up during his career.

"I got in the business in '68, and that was just like '99," says the manager of the ( MUHLX) Muhlenkamp fund. "There were a lot of games being played then, and stocks were being priced on hope rather than reality."

So in 1999, he knew better than to jump into the Internet frenzy. "I learned in '68 that if you aren't early in the fad, stay the hell out," he says.

Back in the late '60s and early '70s, companies such as National Student Marketing and Equity Funding were defrauding the investing public. Today it's Enron ( ENRNQ) -- a grim reminder of another investing truism: "About 2% to 3% of company managements will lie to you," says Muhlenkamp. "The trouble is: you'll never know -- no matter how much work you do."

Your only protection is to own a diversified portfolio of 20 to 30 securities or more, which should also provide a valuable cushion when you make your own mistakes. "No matter how much work I do, I expect to be wrong 20% to 30% of the time, because I didn't perceive changes in the economy, a company or the consumer," he says. "Or because I am not clairvoyant."

Thankfully, Muhlenkamp missed the Internet bubble and the Enron collapse. His fund's three-year annualized return of 11.7% beats the S&P 500 by almost 15 percentage points. "We've looked smart over the past three years, but we could have done better."

He knows from experience that bad news always shows up in the stock price first. "The price will give you warnings long before the fundamentals will tell you something is wrong," he says.

On a weekly basis, Muhlenkamp monitors the performance of his stocks relative to the S&P 500. When their prices start deteriorating, he knows he should sell. "I learned this lesson 20 years ago," he says. "Most of the time I do it. But some of the time I make mistakes."

Muhlenkamp now knows that he should have sold his stock in Calpine ( CPN), the independent power producer, when the stock weakened relative to the S&P last summer. "We have a sizable position in Calpine, and we still think it's a good company," he says. "But, by my own rules, I should have sold it in 2001." Indeed, it's down 83.8% over the past year.

"Sometimes it's better to cut your losses and wait," he adds. "If you're right on the fundamentals, you can always buy it back."

Bill Nygren: Great Companies Don't Have to Be Complicated

If Oakmark's Bill Nygren has made any investing mistakes over the past few years, you wouldn't know from looking at his performance. His ( OAKLX) Oakmark Select fund, which is closed to new investors, has the best five-year record of any mid-cap value fund. And the ( OAKMX) Oakmark fund has made an impressive comeback since Nygren started running it almost two years ago.

As a value investor, Nygren skipped a lot of the nonsense that took down many growth-fund managers, such as the rise and fall of tech and telecom, as well as the Enron catastrophe. But he's been reminded that simple businesses can make great investments.

"There's a price at which I am willing to tackle as complex a situation as there is," he says. "But if a simple and high-quality company happens to be cheap, that's a nice outcome."

Take H&R Block ( HRB), a holding in the Oakmark and Oakmark Select funds. "Here you have a company whose basic business is doing tax returns," Nygren says. "More tax returns are being filed every year, and more filers want professional help. H&R Block keeps growing." The company is a leader in its category, and it's selling at a discount to the S&P 500.

"I have a renewed appreciation of how valuable truly high-quality businesses are," says Nygren.

David Brady: Do the Math

David Brady will admit it. He owned Enron. Now the Stein Roe portfolio manager, like every investor who had money in this disastrous stock, is looking back and asking: "Where did I go wrong?"

"If I learned anything, I learned the same old lessons," Brady says. "The numbers just didn't add up." The company was supposed to be shedding low-return assets such as its pipeline business in favor of more profitable, higher-return ventures such as trading. But Enron's return on assets -- a measure of profitability -- was too low for a company that was supposed to be moving to a more lucrative business line.

"If you had looked at the numbers, the balance sheet would have showed you the real problems," he adds. Brady, who owned Enron stock for years, finally got out of the stock in the fall at around $14 a share.

Not surprisingly, that stock damaged Brady's performance. The ( SRLFX) Stein Roe Focus fund, concentrated in about 25 stocks, has fallen 33.9% in the past year and ranks in the bottom 2% of all large-cap blend funds. The other fund that Brady manages has held up better. The ( SRYIX) Stein Roe Young Investor fund is down 29.7% in the past year, putting it behind 58% of other large-growth funds.

Hopefully, Brady's newfound wisdom will help improve his returns.

No doubt these fund managers are not alone. Please send us some of the lessons you've learned and any investing mistakes you've made over the past couple of years to the email address below.
In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to dagen.mcdowell@thestreet.com.