3 Fatal Flaws of Investing Revealed

Some people are starting to believe that value investing is dead.

Yes, that sounds extreme. However, since this bull market began in 2022 it has been very growth focused. Especially anything having to do with AI. This explains the strength of the Magnificent 7 stocks that all are involved in AI in some fashion. 

Unfortunately if history continues to repeat itself, then year 3 of this bull market (2025) is set to be a dud. Meaning that the first 2 years of a bull market is when the big, easy gains are made. This leads to the 3rd year typically being a bit of a clunker. 

No…not a bear market. Just kind of breakeven results for the major indices. 

Gladly that is the result for the average stock. Whereas our goal is to find above average stocks. Nay…great stocks!

Value is likely to be a key ingredient for the stocks that will shine in 2025 as they have been a bit neglected the past couple years. 

That doesn’t mean that every value stock will rise. In fact, there are 3 fatal flaws of value investing we need to avoid to be on the right side of the action in the year ahead.   

1.  Value Traps (where stocks head lower and lower)
2. Classic Value Metrics Don’t Work Anymore
3. Lack of Timeliness Deadens ROI

Now let’s dive into how the Zen Ratings provides a solution to each of these 3 fatal flaws to uncover value stocks that are primed to outperform.

Fatal Flaw #1: Value Traps

Value investors fall in love with the metrics sometimes which blinds them to other glaring problems. In particular, falling for a stock simply based on having a low PE.

The Value Trap problem emerges when investors don’t realize that the prime reason for the low PE is that the earnings outlook is diminished. Meaning it is a poorly run company that is only going from bad to worse. 

This leads to a string of earnings misses and even lower stock price. 

The best way to avoid these value traps is by ensuring that you are buying shares in a healthy growing company. 

The Zen Ratings accomplishes this by analyzing 26 factors of Financial strength and 22 factors of Growth. Those scoring A & B for these ratings provides very solid evidence that the company is fundamentally sound. 

The sum total of this analysis GREATLY improves the odds of being in a company with improving earnings prospects that leads to more earnings beats and rising share price. This resolves the Value Trap dilemma.  

Fatal Flaw #2: Classic Value Metrics Don’t Work Anymore

Consider this…

Computer driven trading now dominates the investment landscape. No longer is it seasoned investment managers making the decisions. Instead the vast majority of trades are run by these quant models.

This has been true for more than 15 years. And truly billions of dollars have been thrown at these quant models to squeeze out every last drop of profit hidden in shares.

So long ago these models tapped into the benefit of the typical value approaches like PE, Book Value, PEG, Price to Sales etc.

Now after years of high volume trading of these models it could be said that the value well has run dry.

More precisely, the best value metrics have very little benefit on their own. So the key to success is to stack as many of these metrics in your favor as possible. Like the 21 value metrics inside the Zen Ratings model.

To be clear, each and every single one of these 21 value metrics on its own has been tested to find stocks that consistently outperform the market. 

That advantage may be very little for each individual factor. That is why we are stacking 21 independent value criteria one on top of the other to stack the odds of outperformance FIRMLY in our favor. 

Fatal Flaw #3: Lack of Timeliness Deadens ROI

Value is considered a contrarian investing style. That’s because you are betting on companies that are currently out of favor hoping that the share price turns around.

Unfortunately the longer it takes...the more it harms your Return On Investment.

Gladly the Zen Ratings focuses on 23 different factors that greatly increase the timeliness and ROI of your stocks.

22 Momentum Factors

1 AI Factor

We talked about the timeliness benefit of the AI factor in my article from last week: How Can AI Help My Stock Investing?

So today we will focus on the 22 measures of Momentum in the Zen Ratings model. 

Indeed Momentum is just like physics where “a body in motion... stays in motion”.

Our model is trying to capture that through a combination of short term…medium term…and long term measures of positive price action that increases the odds the stock will stay in favor. Meaning it will be a timely selection helping to resolve the 3rd and final flaw of value investing. 

All in all the Zen Ratings applies 115 different factors to find the best stocks. The combination of which truly helps overcome the 3 fatal flaws of value investing and is the perfect tool to help you beat the market in 2025 as it should be very much value focused. 

What to Do Next? 

1) Review all of your stocks to make sure they make the grade with the Zen Ratings. Not just A and B rated overall, but how they stack up for Value, Growth, Financials, Momentum, AI and more. 

Just go to WallStreetZen.com and use the search box to review your stocks 1 by 1. Start here >

2) STRONGLY consider selling those stocks that don’t measure up. That’s because history shows poor ratings = poor performance. 

+32.52% annual return for A rated stocks

-8.02% annual return for F rated stocks

3) Find better stocks. Continue your search of stock tickers on WallStreetZen.com to add more with the best Zen Ratings. 

Note that today there are 918 A & B overall rated stocks. 386 of those stocks also have A or B ratings for Value. 

For those who want to simplify this stock research process, you may want to just skip to step 4 below…

4) Discover my Zen Investor portfolio where I hand pick the best stocks based on their Zen Ratings. Currently there are 16 top Zen Rated stocks in my portfolio which is likely a better starting point for your exploration. 

Plus 2 new picks packed with the best Zen Ratings will be unveiled on Wednesday January 8th. 

Discover the Zen Investor & Top Stocks Now > 

Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor-in-Chief of WallStreetZen

What to Do Next?

• Discover Zen Investor portfolio to Find More 100%+ Stock Winners >
• Upgrade Your Investing - Start Your Premium Trial Now! >
• Watch “Zen Ratings Revolution” to Unlock +32.52% Annual Gains >

Want to get in touch? Email us at news@wallstreetzen.com.