Common Value Investing Mistakes and How to Avoid Them
Value investing—the strategy of buying stocks that trade below their intrinsic value—has created fortunes for patient investors like Warren Buffett and Benjamin Graham. Yet even as this approach has proven successful over decades, countless investors continue to stumble into the same pitfalls. Understanding these common mistakes can be the difference between building wealth and watching your capital slowly erode.
Whether you're just starting your investment journey or have been managing your portfolio for years, these insights will help you refine your approach and avoid costly errors that even the legends have made.
Valuation Traps That Ensnare New Investors
Chasing Low Multiples Without Context
One of the most common mistakes new value investors make is buying stocks solely because they have low price-to-earnings (P/E) or price-to-book (P/B) ratios. While these metrics can identify potentially undervalued companies, they can also lead you straight into "value traps"—companies that appear cheap for good reason.
As a recent TalkMarkets article points out, "A low price-to-earnings (P/E) ratio might seem like a bargain, but there's often a reason a stock is trading at a discount." Many investors fall into this trap without considering the company's fundamentals, industry trends, or potential risks.
Failing to Demand a Sufficient Margin of Safety
Benjamin Graham emphasized the importance of a "margin of safety"—buying stocks significantly below their intrinsic value to provide a buffer against errors in analysis or unexpected market developments. Many investors overlook this principle and end up overpaying
"Even Great Companies Can Be Bad Investments at the Wrong Price," notes TalkMarkets. This is particularly relevant today when many investors justify high valuations with optimistic growth assumptions. Remember that no company's future is certain, and without a margin of safety, you're exposing yourself to unnecessary risk.
Quality Assessment Failures
Ignoring the Business Model's Viability
Many value investors become so focused on financial metrics that they overlook fundamental flaws in a company's business model. Stockopedia warns that "Sometimes a company may simply be serving a market that no longer exists, or at a price that is no longer relevant, given competition or new substitutes for the product".
This oversight can be particularly damaging in today's rapidly evolving economy, where technological disruption can quickly render business models obsolete. As Research Affiliates points out, "Technological progress has hurt Value Investors more than anything in the past 20 years".
Ignoring the Business Model's Viability
Great companies require great leadership, but many investors focus exclusively on financial statements without evaluating management quality. According to value investing expert Vitaliy Katsenelson, investors should "Don't buy stocks because they are cheap; focus on management".
Psychological Pitfalls
Getting Impatient and Selling Too Soon
Value investing rewards patience, but many investors lack the temperament to see their thesis through. "Many investors get discouraged when a stock doesn't immediately rise after they buy it. Selling too early out of impatience or fear means missing out on the long-term compounding potential of value stocks," according to TalkMarkets.
In fact, it's common for value stocks to decline further after purchase before eventually recovering—a phenomenon that tests even experienced investors' resolve. Setting clear investment theses and timelines can help you avoid making emotional decisions during inevitable market fluctuations.
Letting Your Time Horizon Shrink
Vitaliy Katsenelson identifies shrinking time horizons as a top mistake: "Don't let your time horizon shrink". When markets turn volatile, investors often unconsciously reduce their investment timeframe, focusing on short-term price movements rather than long-term business performance.
This shortened perspective leads to reactive trading rather than thoughtful investing—precisely the opposite of what successful value investing requires.
Research and Analysis Errors
Not Doing Your Own Research
Relying on tips, analyst recommendations, or popular opinion without conducting independent research is a recipe for poor results. Katsenelson emphasizes, "Do your own research"
While external sources can provide valuable insights, they should complement—not replace—your own analysis. Each investor's circumstances, risk tolerance, and objectives are unique, making outsourced decision-making particularly dangerous.
Missing Red Flags in Financial Statements
Stockopedia warns investors to check if "the accounting [is] flawed or overly aggressive". Financial statements can contain subtle warnings about a company's health that inexperienced investors might miss.
Learning From Famous Investors' Mistakes
Buffett's ConocoPhillips Mistake
In 2008, Buffett invested heavily in oil giant ConocoPhillips just before oil prices peaked. As reported by Saxo: "In 2008, just before oil prices were peaking, Warren Buffett invested a big part of the portfolio into US oil major ConocoPhillips betting on high oil prices to continue. As the world plunged into a catastrophic credit meltdown oil prices plummeted leading to large losses for Berkshire"
Buffett later admitted to "terrible timing" and emphasized a key lesson: be cautious with companies in cyclical sectors and think twice before investing in stocks that have experienced dramatic momentum over multiple years.
Overpaying for Precision Castparts
In 2016, Buffett's Berkshire Hathaway acquired Precision Castparts, a metal fabrication company with strong exposure to the aerospace sector, for $32.1 billion. By August 2020, as the Covid pandemic devastated the aviation industry, Berkshire wrote off $9.8 billion on this investment, with Buffett acknowledging that he "paid too much".
This highlights the danger of allocating too large a position to a single company heavily exposed to a specific industry—regardless of the company's quality.
How to Avoid These Common Mistakes
1. Focus on Business Quality, Not Just Price
Look beyond simple valuation metrics to assess the durability of a company's competitive advantages, the industry's growth prospects, and management's track record. A truly valuable business has both an attractive price and sustainable competitive advantages.
2. Maintain a Strict Margin of Safety
As Research Affiliates notes, "Value traps, cheap companies whose debilities have not yet been fully reflected in prices, increase risk and erode returns for value investors". Always require a significant discount to your calculated intrinsic value to provide protection against analytical errors and unforeseen circumstances.
3. Diversify Appropriately
"Too Many Stocks Can Dilute Returns, Too Few Can Increase Risk," warns TalkMarkets. Find the right balance for your portfolio, typically between 15-25 stocks for individual investors who want to stay adequately diversified while maintaining concentration in their best ideas.
4. Conduct Thorough Due Diligence
Examine financial statements carefully, read annual reports, and understand the business model thoroughly. Pay special attention to debt levels, cash flow patterns, and accounting practices that might indicate problems.
5. Consider Both Quality and Momentum
Research Affiliates found that "By purging problem stocks using momentum and quality signals, returns improve across all but the most expensive companies. These improvements are most notable in the two cheapest valuation quintiles of the market". Incorporating these additional factors can help you avoid value traps while maintaining exposure to potentially undervalued opportunities.
Streamline Your Company Analysis Process
For many investors, the greatest challenge in implementing a value investing approach is conducting thorough company analysis. This time-intensive process requires examining financial statements, industry trends, competitive positioning, and management quality—skills that take years to develop.
To help investors navigate these challenges, Cayden Chang, founder of Value Investing Academy, will be hosting a free Company Analysis Webinar that demonstrates a step-by-step approach to evaluating potential investments. During this session, Cayden will walk through a complete company analysis using value investing principles.
Additionally, attendees will get a first-hand look at the ViA Atlas Case Study Membership, a powerful tool that allows investors to quickly screen pre-qualified value companies. This platform provides access to companies that have already been vetted by a team of experienced analysts, potentially saving investors hundreds of hours of research time.
Whether you're struggling to avoid value traps or simply looking to refine your analysis process, this webinar offers practical insights to help you implement the principles discussed in this article.
How to Avoid These Common Mistakes
Value investing is conceptually simple but behaviorally difficult. By understanding and actively avoiding these common mistakes, you can improve your investment results and build wealth over time. Remember Warren Buffett's wisdom from the Berkshire Hathaway 1992 Shareholder Letter: "An investor has to do very few things right as long as he or she avoids big mistakes".
Developing the discipline to conduct thorough research, demand a margin of safety, and maintain patience through market volatility will serve you well regardless of market conditions. And while investment tools and resources can accelerate your learning curve, there's no substitute for developing your own critical thinking skills.
By learning from both your own mistakes and those of even the most successful investors, you can gradually refine your approach and improve your results over time—the true path to investment success.
See Value Investing in Action
Presented by Cayden Chang
Founder of Value Investing Academy and Award-Winning International Speaker, Lifelong Learner Award 2008, Personal Brand Award 2017
You will learn:
- A deep dive into a fast-growth company case study.
- The key financial metrics used when evaluating whether a stock has strong growth potential
- Step-by-step guide on how to apply the Value Investing Methodology on real-life companies
- The exact criteria that successful investors use when evaluating any company
- How to determine the intrinsic value of a stock so you will know exactly when to enter or exit the market
- How ViA Atlas Intrinsic Value (IV) Directory can get you started on building your own portfolio of superhero stocks, even for busy professionals without much time to spare.
Click the button below to reserve your spot now.
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Robert G Allen
Through the past 40 years, MILLIONS of people have attended his live seminars and his graduates have earned BILLIONS in profits by following his financial advice. Today there are literally thousands of millionaires and multi-millionaires worldwide who attribute their success to Mr. Allen’s systems and strategies. Empowered by his philosophy of the Enlightened Entrepreneur, his students have generously contributed over 50 million dollars to their favorite churches, causes and charities.
As a public speaker, he has spoken to audiences worldwide as large as 20,000 people, sharing stages with the likes of Sir Richard Branson, Tony Robbins, Robert Kiyosaki, Oprah Winfrey, Prime Minister Tony Blair and Donald Trump. In America, the National Speaker Association gave him an award as America's Top Millionaire Maker.
As a trainer and educator, he has spoken to groups all over the world from United States, Singapore, Mexico, Canada, South Africa, Russia, Kazakhstan, Latvia, Slovenia, Australia, Italy, England, Japan, Taiwan, Hong Kong and China. He teaches on the subjects of personal finance, wealth creation, multiple streams of income, entrepreneurship, authorship, sales, marketing and personal growth.
He is a popular media guest appearing on hundreds of radio and television programs including Good Morning America, Regis Philbin, Neil Cavuto and Larry King. He has been the subject in numerous international publications including the Wall Street Journal, The Los Angeles Times, The Washington Post, Newsweek, Barons, Redbook, Money Magazine and The Reader Digest to name just a few.
Ernee Ong
Ernee Ong is the co-founder of Proptiply, a property consulting and investment education company that builds on the concept of co-living to generate rental income. He aims to educate and empower aspiring property investors to attain their life goals through prudent and sound property investing principles.
Ernee is a loving husband to Jelene and a father to two wonderful daughters. Alongside Jelene, he is a co-founder and the driving force behind Proptiply™.
Proptiply™is a Property Education Company that empowers students with a focus on teaching them how to build cashflow by leveraging other people's resources and scaling up. Ernee has achieved remarkable success, moving from living in a 3-room HDB flat to owning a landed property and acquiring an additional one.
Ernee will be sharing insights into how individual Singaporeans or Permanent Residents (PRs) can scale up their property portfolio even with limited resources. His journey has been featured in prestigious media outlets like CNA, the South China Morning Post, and other news channels, showcasing how he managed to build an 8-figure business while overseeing 300+ properties in Singapore.
Vincent Chua
Vincent is a financial planner who specializes in investment and retirement planning. He helps people achieve their financial goals and dreams through comprehensive and customized solutions.
He has nearly a decade of experience in the financial services industry and is a Certified Financial Planner, CFP®. He is passionate about educating people on the importance and relevance of financial planning in today's world.
He grew up in Toa Payoh, a mature estate in Singapore, witnessing many senior citizens struggle with health and financial issues. They often told him that "it's better to be dead than to be sick in Singapore". This made him realize the value of money and motivated him to learn about investments at a young age. Later, he discovered the financial planning industry and decided to pursue it as a career.
He loves what he does because he makes a positive difference in people's lives. Whether it's helping them grow their wealth, protect their income, or plan for retirement, he enjoys seeing them achieve their desired outcomes and live their best lives.
Self-made Millionaire Investor
Liu Feng
Liu Feng graduated from Beijing University and came to Singapore in 1994, and went from having a mere S$100 in his wallet to becoming a millionaire. Armed with a strong determination, he made the majority of his fortune through Value Investing using principles created by Warren Buffett, one of the richest man in the world. Across the years, he has accumulated extensive experience and in-depth knowledge in stock investing.
Liu Feng specialized in stock investment. Since he first read a book about Warren Buffet in 1996, he has since done extensive studies on Value Investing Gurus – Benjamin Graham, Philip Fisher, Peter Lynch and John Neff. Through continuously fine-tuning his investment model, combined with his investment experience, he has founded a set of Investment Philosophies, Value Investing Principles and Methodologies to create passive income. Those who have been taught by him have found his teaching easy to understand as well as benefited from his many years of experience and insight on stock investments.
As an experienced value investor, Liu Feng incorporates real case studies of numerous Singapore-listed companies in his training, coupled with a systematic and proven methodology to provide a distinct advantage in the stock market.
Lauren C Templeton
Lauren C. Templeton is the founder and Chief Executive Officer of Templeton & Phillips Capital Management, LLC. Prior to founding the firm in 2001, Lauren was employed with Morgan Stanley, Homrich Berg, and New Providence Advisors, a hedge fund management company, based in Atlanta, GA.
“Author of “Investing the Templeton Way: the Market Beating Strategies of Value Investing's Legendary Bargain Hunter”, Lauren is also the great niece of Sir John M. Templeton and is a current member of the John M. Templeton Foundation, established in 1987 by renowned international investor, Sir John Templeton. She began investing as a child under the heavy influence of her father as well as her late great-uncle, Sir John Templeton.
About Sir John Templeton
Sir John Marks Templeton was born in 1912, in the small town of Winchester, Tennessee. He attended Yale University and graduated near the top of his class and as President of Phi Beta Kappa. He was named a Rhodes Scholar to Balliol College at Oxford, from which he graduated with a degree in law.
Templeton started his Wall Street career in 1938 and went on to create some of the world’s largest and most successful international investment funds. He was famous for picking companies that hit “points of maximum pessimism” (ie. Rock bottom prices). When war began in Europe in 1939, he borrowed money to buy 100 shares each in 104 companies selling at one dollar per share or less, including 34 companies that were in bankruptcy. Only four turned out to be worthless, and he turned large profits on the others.
Templeton established the Templeton Growth Fund in 1954. With dividends reinvested, each $10,000 invested in the Templeton Growth Fund Class A at its inception would have grown to $2 million by 1992. He eventually sold the family of Templeton Funds to the Franklin Group — scores of them with $13 billion in assets — in 1992, and turned to philanthropies that had engaged him for decades.
Investing the Templeton Way Podcast
Investing the Templeton Way with Lauren Templeton is a podcast that explores the world’s most intriguing investment topics from the overseas markets to mastering our own minds. Gather investment wisdom and educate yourself as you listen to interviews with exclusive managers, executives, and entrepreneurs on a wide range of engaging topics. Visit the Podcast Page.
Dr Todd A Finkle
Todd A. Finkle, Ph.D. is the Pigott Professor of Entrepreneurship at Gonzaga University. He has taught for 34 years at 4 different universities, publishing more than 270 articles, books, presentations, and grants.
Dr. Finkle is an expert on Warren Buffett and Entrepreneurship. His recent book titled," Warren Buffett: Investor and Entrepreneur," is published by Columbia University Press. The book traces the entrepreneurial paths that shaped Buffett’s career, from selling gum door-to-door during childhood to forming Berkshire Hathaway and developing it into a global conglomerate through the imaginative deployment of financial instruments and creative deal making.
Dr. Finkle's initial motivation for writing the book was to show the layperson how Buffett evaluates potential investments. Finkle also zeros in on Buffett’s longtime business partner Charlie Munger and his contributions to Berkshire Hathaway's success. Finkle draws key lessons from Buffett’s mistakes as well as his successes, using these failures to explore the ways behavioral biases can affect investors and how to overcome them.
Dr. Finkle is a pioneer and innovator in the field of entrepreneurship education. He has been an entrepreneur of six ventures and consulted with a wide variety of entities including countries and universities from all over the world. Dr. Finkle has been interviewed or appeared in a variety of media outlets including the Cleveland Plain Dealer, Entrepreneur Magazine, Forbes Magazine, Omaha World Herald, Wall Street Journal, The Washington Post, and several radio and television stations.
Cayden Chang
Cayden Chang is the Founder of Mind Kinesis Investments Pte Ltd and Value Investing Academy Pte Ltd, which runs the first and only Value Investing training that is recommended and endorsed by Mary Buffett, the internationally acclaimed author and speaker of how billionaire Warren Buffett invests. His company also runs Value Investing workshops across Asia. With over 50,000 graduates across 11 cities in Asia, his methodology is tested, proven and easily duplicable even for someone who has no prior experience in investing.
Cayden holds two Bachelors’ Degrees and a Masters Degree from National University of Singapore. He has also been trained in value investing by Professor Bruce Greenwald in Columbia University, the institution where Billionaire investor Warren Buffett met Professor Benjamin Graham, as well as by Professor George Athanassakos, the finance professor who holds the Ben Graham Chair in Value Investing at the Richard lvey School of Business, University of Western Ontario.
Cayden has also received the Lifelong Learners Award 2008 from the Minister of Manpower on 18 November 2008, Mr Gan Kim Yong and he was featured in “TODAY” newspaper, “938Live Online News”, “938Live Radio Station”, “Mediacorp Xin.Sg” and “The Straits Times”. He was subsequently featured in “938Live Breakfast Club” Radio, “Channel News Asia AM Live”, “Shareinvestment”, “The Edge”, and “The Exquisite” Magazine for sharing his secrets of financial success.
In July 2010, he was diagnosed with Renal Cancer. Despite being ill, he launched his first charity project in August 2010, where he donated all of the sales proceeds of his book to The Straits Times School Pocket Money Fund, and was featured on 938 Live Radio Station and The Straits Times. His fight with Renal Cancer was subsequently published in The Straits Times and interviewed on 938Live Radio Station. His life story was featured in The Sunday Times on 10 June 2012. He survived terminal stage Renal Cancer (Stage 4) in September 2014 and launched his second book titled “The Book of Hope” to raise funds for cancer research.
