Similarly, Roddy Boyd wrote about Bassett Furniture Industries Inc. (NASDAQ: BSET) losing $19.9 million from continuing operations in 2007 but still paid a hefty dividend. How'd they pull that one off? Boyd writes that "The company has $51.7 million invested across a spectrum of hedge funds, which kicked in just over $5.92 million in loss-defraying cash last year."

Investors in Bassett Furniture should know that they're making a bet on the company's ability to profit from hedge fund investments -- a very, very different business from furniture. There's nothing wrong with that but it's something investors need to know -- and something a quick skim of the ratios won't tell you.

When you invest in a company without really knowing how they make money, you are taking a leap of faith that can make yourself vulnerable to disaster. In The Entrepreneurial Investor, the best investment book of the year by the way, the fund managers at West Coast Asset Management explain it this way:

When someone complains that he or she lost money by investing in Enron, we express mild sympathy. Then we put on our most naive expression to say "You know, I've never quite understood what business Enron was in. Could you explain it to me?" ... As far as we can tell, the handful of people who really understood Enron's business made a lot of money, although several are facing prison time

If you don't have the time or inclination to dive in and understand how the companies you own really make money -- and it isn't always as simple as "a shoe company makes by selling shoes -- mutual funds are the way to go.