Investing 101 - Module 3.3

Value Traps Identification - 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] - A stock may appear inexpensive due to declining business fundamentals or a lack of industry growth [4] Due Diligence - To avoid value traps, it's crucial to investigate a business's fundamentals beyond valuation metrics [4][5] - Key components 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]