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Many shares look incredibly cheap in this vicious bear market. But investors still need to be careful to avoid being burnt even more. Simple is best.
History's greatest investor, Warren Buffett, has two simple rules.
* Rule #1: Never lose money.
* Rule #2: Never forget rule #1.
A Big, Sarcastic Thank-you, Warren!
Sure, practically everyone has lost money in this market -- including Buffett. But take it easy on the Oracle of Omaha here, because he's dead-right. Buffett's intense focus on not just investing in great opportunities but avoiding terrible ones has been the key to epic success.
Avoiding soul-sucking investments -- what we investing nerds dub "value traps" -- is hardly rocket science. Yet, incredibly, I see investors new and old alike make the same mistakes over and over again, breaking Buffett's rules and walking right into what seem like obvious value traps.
Having spent way too much time thinking about it, I've concluded that there are five primary categories of these dreaded mistakes. Avoiding these five traps will save you time, money, and more than a little heartache.
Wrapping the traps
To recap, you can smooth and improve your returns if you:
1. Avoid the stalled-out growth stock undergoing a quarter-life crisis.
2. Steer clear of hot small-caps with blah track records.
3. Don't get tripped up by seemingly cheap soaring cyclicals.
4. Think twice about the yield that looks too good to be true.
5. Don't lean on inflated or unadjusted book values.
You've probably picked up on an underlying theme here: You need unconventionally conventional thinking if you want low-stress success in the stock market.
Looking for great, simple-to-understand businesses at good prices is the easiest way to avoid stepping into a value trap -- and bag great returns besides.
History's greatest investor, Warren Buffett, has two simple rules.
* Rule #1: Never lose money.
* Rule #2: Never forget rule #1.
A Big, Sarcastic Thank-you, Warren!
Sure, practically everyone has lost money in this market -- including Buffett. But take it easy on the Oracle of Omaha here, because he's dead-right. Buffett's intense focus on not just investing in great opportunities but avoiding terrible ones has been the key to epic success.
Avoiding soul-sucking investments -- what we investing nerds dub "value traps" -- is hardly rocket science. Yet, incredibly, I see investors new and old alike make the same mistakes over and over again, breaking Buffett's rules and walking right into what seem like obvious value traps.
Having spent way too much time thinking about it, I've concluded that there are five primary categories of these dreaded mistakes. Avoiding these five traps will save you time, money, and more than a little heartache.
Wrapping the traps
To recap, you can smooth and improve your returns if you:
1. Avoid the stalled-out growth stock undergoing a quarter-life crisis.
2. Steer clear of hot small-caps with blah track records.
3. Don't get tripped up by seemingly cheap soaring cyclicals.
4. Think twice about the yield that looks too good to be true.
5. Don't lean on inflated or unadjusted book values.
You've probably picked up on an underlying theme here: You need unconventionally conventional thinking if you want low-stress success in the stock market.
Looking for great, simple-to-understand businesses at good prices is the easiest way to avoid stepping into a value trap -- and bag great returns besides.
