Obviously, when you’re digging into “value” companies, you’re seeking out companies that are currently undervalued by the stock market. This can happen for a lot of reasons:
- these companies are boring,
- these companies are not experiencing rapid growth, or,
- more ominously, something nasty is afoot with this business.
The problem with teasing out companies that are up to shenanigans is that there’s no ready made recipe for identifying them. This is where homework comes into play. You need to study the individual companies you invest in. Careful study of a company will often identify fundamental problems in their business plan - and if you see those things, you can stay away.
http://www.thesimpledollar.com/2009/02/06/the-intelligent-investor-four-extremely-instructive-case-histories/
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