Value Investing Considerations - Value traps are stocks that appear cheap based on metrics like the PE ratio, but are cheap for a reason [1][3] - Investor emotions, such as negative market sentiment or overreaction to missed earnings, can temporarily undervalue a good business [2] - Declining business fundamentals, eroding competitive position, or lack of industry growth can make a stock a value trap [4] Due Diligence - To avoid value traps, investors must investigate a business's fundamentals beyond valuation metrics [4][5] - Key fundamentals to examine include financial strength, profitability, growth prospects, and industry dynamics [5] - Red flags in these areas may justify a low valuation [5] Tools and Resources - Guru Focus's warning signs tool can help quickly identify potential value traps [6]
Investing 101 - 3.3
GuruFocus·2025-10-16 16:29