Lawsuit Dangers

One of my first dumb investments was in a company that made fuel additives. I bought it around $13, and sold it at $3. I didn't do enough checking into it before I bought it. If I had, I would have discovered that it had some lawsuits pending that might get it into trouble, which did indeed happen. First management lowered the company's generous dividend by 50 percent — that should have been my first clue. Then, they discontinued it altogether. That is when I got out at $3 and took a loss. Now I mostly own blue-chip dividend-payers.

— Kathy C., Calif.

The Fool Responds: You learned a valuable lesson, that legal entanglements can send a company's shares southward, or keep them down. Even the threat of that can do so. Tobacco companies, for example, have been avoided by many people because of the threat of lawsuits. And companies involved in the making or selling of asbestos, lead paint, silicone breast implants and other things have similarly felt pressures because of the threat of possible lawsuits or the possible costs of existing lawsuits.

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