Early in this decade, corn ethanol appeared to have all the attributes of a huge winner. It solved a big problem-our dependence on foreign oil-and it had the backing of the U.S. government, which appeared ready to force refiners to use ever-greater amounts of it in their formulations. So when South Dakota-based ethanol maker VeraSun went public in 2006, it was met with a fittingly enthusiastic reception. Its market cap on the day of its IPO was $3 billion, or nearly three times its annual revenue. And it delivered operationally-sort of.

In its two years as a public company, its sales soared, just as you'd expect with the government mandating its product's use in every gallon of gas. But at the same time, several other things happened: First, ethanol companies were springing up all over the Farm Belt to get in on the government's largesse, causing the supply of ethanol to soar and its price to fall. In the fourth quarter of 2007, VeraSun sold twice as much ethanol, year over year, but at an average price per gallon of 14% less. On the raw material front, corn was $3.81 a bushel, compared to $3.23 a year earlier. The result was a classic margin squeeze, with earnings falling from $0.27 a share to $0.04. While the business was deteriorating, the investment community was hearing about ethanol's many drawbacks and concluding that fuel made from food was a dead end. By early 2008, VeraSun's stock was down by about 70% from its post-IPO high. The lesson: Not everything sold as "green" is either green or a viable business. Some things just don't work, and the experts frequently miss the flaws early on.