According to a proverb dating to 1576, what you don’t know can’t hurt you. In other words, it’s better to be ignorant of things that can distress you.

This definitely does not hold when it comes to the stock market, where the unknown – something you don’t think much about – will often pop up and clobber stock prices.

For example, let’s tick off the knowns, what worries stock players the most about the 2006 market. In brief:

* Rising interest rates, with widespread expectations we’ll see two or three more rate hikes before a pause.

* Economic uncertainties, especially after the initial report of disappointing fourth quarter GDP growth of just 1.1%.

* Slowing earnings growth, coupled with the growing fear that analysts’ 2006 estimates are on the high side.

* Lofty oil prices, with just about every brokerage raising its projected 2006 oil price outlook.

* Mounting geopolitical risks, especially in the Mideast, concerning Iran’s nuclear ambitions and Hamas’s recent political win.

* The threat of a major break in real estate prices.

* The possibility of a renewed plunge in the dollar, which the sharply rising gold price may be signaling.

* The preponderance of bullish sentiment, generally a reliable contrary indicator.

Now to the unknown. Charles Allmon, a veteran investment adviser and editor of the Growth Stock Outlook, a monthly newsletter in Chevy Chase, Md., serves up yet another worry – new hedge fund fiascos – one that he thinks is being ignored and absolutely belongs on the investor radar screen. And that’s why he’s warning GSO’s subscribers.

For several months now, the market has been free of any new hedge fund scandals. But, Mr. Allmon, a market bear, thinks more problems could follow several recent ones, including:

* Bayou Partners, a Connecticut based hedge fund that stole $300 million from its investors. It turned out to be, as one Bayou investor described it to me, “a financial house of horror.”

* Wood River Capital Management, another hedge fund that failed to disclose that 90% of its assets had been sunk into two flimsy companies.

* Durus Capital Management, yet another Connecticut-based hedge fund, which filed false information after trying to goose the stock prices of biotech companies.

* Refco, a big commodities dealer that went public in August, then quickly capsized when the CEO, who reportedly also ran a huge fund, apparently dropped $430 million of debt from its balancesheet, an event not disclosed in the offering prospectus.

Why more scandals? Because, as Mr. Allmon sees it, aside from a few highly talented fund managers with outstanding records, “more than a passel of crooks and numbskulls ply their trade in the anything-but-transparent world of hedge funds.” He adds, “Leverage may fly through the roof as derivatives, those financial hydrogen bombs, offer the gambling vehicles of choice.”

At present, there are roughly 8,000 hedge funds that manage an estimated $1.1 trillion of assets. Observing that hedge funds are essentially accountable to no one – “Just try and get your money out quickly,” Mr. Allmon says – he predicts devastation ahead for investors, whom, he believes, could lose as much $200 billion to $400 billion of their $1.1 trillion ante.

Actually, as of last Wednesday, regulation did come to hedge funds as new rules required managers to register with the Securities and Exchange Commission. Because of loopholes, though, fewer than the expected number of managers registered.

Another Wall Street veteran, Barton Biggs, a former investment strategist at Morgan Stanley who wrote a book on hedge funds, HedgeHogging, has described hedge funds as “a grossly overpopulated loser’s game.” He also noted that at least 1,000 such funds went out of business in 2004, most of which were probably big losers. Actually, Mr. Biggs’s own hedge fund met with disastrous results when he blundered badly by taking a big short position in oil.

In the minds of many investors, letting hedge funds, which are supposedly run by highly sophisticated managers, manage their money is a good way to get rich in the stock market. And in the past, that has been the case with such investment stars as George Soros, Julian Robertson, Michael Steinhardt, and Richard Gilder.

In recent years, though, hedge funds have hardly set the world on fire. According to the Credit Suisse/Tremont Hedge Fund Index, the average hedge fund rose 9.6% in 2004 and 7.6% in 2005.

The CEO of a Nasdaq-listed fast food company, who asked that he not be identified, invested $3 million in an Eastern hedge fund about two years ago. As of the end of 2005, his investment was worth about $312,000. “It was like amateur’s night on Wall Street,” he said. “My dogwalker could have done better.”

dandordan@aol.com