Wiped Out by Bankrupt Investment

My dumbest investment was investing in Delta Air Lines when the company was in trouble and shares were trading for less than they seemed to be worth.

I was sure some other company would buy Delta, but that didn’t happen. It filed for bankruptcy protection, then emerged from it later with new shares, after wiping out previous shareholders like me. It almost prevented me from ever investing in stocks again. — Eaamon, online

The Fool Responds: It’s often best to avoid companies that are going through tough times unless you have a lot of reason to believe that they will recover and prosper. Many times, struggling companies keep struggling for a long time — and sometimes go under.

Challenged by steep fuel prices and increasing competition, Delta had been unprofitable for years before filing for bankruptcy in 2005. (It wasn’t the only airline to do so at the time.) It then underwent major cost-cutting before emerging as a new company in 2007. The airline’s performance was a bit bumpy in the first few years after that, but then it became a solid performer.

Delta has averaged annual gains of about 10 percent since exiting bankruptcy. Part of its success is due to its merger with Northwest and to beefing up its international business. The company has been posting strong numbers and is looking to add new fuel-efficient planes to its fleet.