I asked, “What's the biggest valuation mistake you've ever made?”
I recieved 135 replies
Here are the 6 biggest valuation blunders to avoid:
1: Overemphasizing growth
No surprise to see this one at the top of the list
Many investors (including me) focus too heavily on top-line growth
Growth is important, but ONLY when combined with other factors like business model, financials, management, & moat
2: Not understanding the “hype cycle”
AI. Metaverse. 3D Printing. Cannabis. Fintech. IoT. Plant-based meat.
There are dozens of promising markets on the horizon
If you choose to invest in them, you should study this picture intensely
3: Buying bad companies because they are “cheap”
Just because a company has:
▪️A low P/E ratio
▪️A high dividend yield
▪️Fallen sharply from its 52-week high
Doesn’t mean it's "cheap"!
A "cheap" valuation won't save you if the business is crumbling
4: Not buying because of a “high” P/E ratio
I’ve made this mistake many times
Companies in phases 3 & 4 are not optimized for earnings, so the P/E can look “expensive”
You must consider where a company is in the business growth cycle before you judge the valuation
