Ever since Enron's ( ENRNQ) stock tanked last fall, I've been trying to reason with myself and avoid overreacting. No one could have predicted the fall of Enron, I say, to soothe myself for being foolish enough to hold the stock through the bankruptcy filing.

Then I look around at my other stocks and tell myself: Enron is an isolated situation. No need to panic.

Both rationalizations are designed to make me feel better. But even I can see that they are mutually exclusive. If no one could have found out the level of misconduct at Enron, then lots of companies could do what Enron did, and I wouldn't have a clue about it until it was too late.

Does it really matter whether Enron fooled Arthur Andersen, its auditor, or whether Arthur Andersen was in on it? I wasn't in on it, and I don't see any possible way I could have been.

When Enron Was Cool

I bought Enron because I thought it was a snazzy, innovative company with great growth prospects in a tired industry. Fortune magazine put Enron on its list of the most innovative companies six years in a row. And I must admit I still like the idea. The deregulation of energy should open opportunities for entrepreneurial companies with good ideas and the willingness to take on risks.

So where does this leave us? We know we're supposed to do fundamental research to look at things like the amount of debt on the balance sheet. But that wasn't likely to do us any good here, because Enron took all the nasty stuff off the balance sheet and hid it in invisible partnerships. And now investigators say the company told some white lies about income, too.

The fact that much bigger and smarter investors than me went down with the stock doesn't comfort me. Nor does the fact that some of the Enron folks might spend some time in jail. On the other hand, I don't see any point in beating myself up about it. I knew the risks when I bought the stock.

But Enron forces me to again weigh the risks of buying individual stocks. At this point, the dangers look too big.

Tim's Smug Grin

I can see Tim Middleton, a mutual fund columnist, rubbing his hands together with a smug grin on his face. Tim's long thought me a fool to invest in stocks, and if I capitulate, it proves him right and me wrong.

I don't care too much about that. Pride doesn't have a place in such decisions. Still, I admit to waffling on this issue for a couple of months now. On one hand, I believe the mistake most of us make in the market is to react rather than to act. We sit on the sidelines until the market is near its peak, and then we jump on board and ride it down. We vow to wait it out, and then we wait until we just can't take it anymore and sell just before it goes up.

I decided once before to swear off individual stocks. Now I'll be repeating myself, and I hate to do that. It makes me look so indecisive. I bought my first individual stock in August 1987 at the market peak and watched it plunge in that year's October crash. Then I swore I would stick with mutual funds, and I did for more than 10 years.

But when I started writing an online column, I got swept up in the notion that I knew something about investing. No investing columnist wants to admit she lost her head. But there you have it. Buying stocks like Qualcomm ( QCOM) and Cisco Systems ( CSCO) and JDS Fitel -- JDS Uniphase ( JDSU) now -- at the right time heightened my sense that I must know something. Now I see that 1999 was the right time to buy almost any stock, provided you sold it at the beginning of 2000.

And I did. I felt that the market had run up too fast, that it was toppy and scary, and I sold most of my tech stocks just before the market started to dive. Now I was starting to feel like Elaine Garzarelli, the market timer who called the '87 crash. But I didn't know nearly as much as I thought I did.

My Tech-Buying Binge

To diversify, I bought Enron, and then, at the end of 2000 and in the spring of 2001, I started buying tech stocks again because the prices were so low. But compared with what? Certainly compared with what they had been. But clearly not low enough.

I now have several stocks in my portfolio that seem to be in a dead heat to achieve penny stock status, names like Nortel Networks ( NT) and Corning ( GLW) and Lucent ( LU) and Sycamore Networks ( SCMR) and TranSwitch ( TXCC). About the only thing I can say for myself is that I didn't invest in Global Crossing ( GBLXQ).

None of these stocks are quite like Enron. Yet. But Enron demonstrated what a company can become, and that no amount of studying can find something a company wants to hide.

I remember other investors urged me to sell Enron at $7. But I didn't. I just couldn't fathom this level of fraud and deceit at the country's seventh-largest company. Now I don't feel so confident of those other stocks that are trading in the $7 range, either. I have to admit that I simply can't perform the due diligence necessary to invest with confidence in individual stocks.

A technical analyst might argue that I could develop a numerical system of stock picking. But I'm not qualified to do that. I also believe that in the long run, the market defeats quantitative systems and that a technical investor must spend a good deal of time improving on his systems and finding new ones to keep ahead of the game. Quant managers have told me as much. Techniques like buying on positive earnings surprises don't have the punch they once did.

So where does that leave me? If I were starting from scratch, I could set up a diversified portfolio using the exchange-traded funds on the American Stock Exchange. But I'm not starting from scratch. Selling everything would be a mistake. I need to analyze what I've got in my portfolio now, decide what I want the portfolio to look like and then start moving gradually to the new model. I'll take that up in next week's column.
At the time of publication, Mary Rowland owned or controlled shares in the following equities: Enron, Qualcomm, Cisco Systems, JDS Uniphase, Nortel, Corning, Lucent, Sycamore, TranSwitch and Broadcom.

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