My value investing origins

Many many years ago when I first began investing, trading, participating in the markets (around 1999) I was 19 years old. I was first and foremost a value investor.

I have had mixed results with value investing. At times I have fallen for value traps and lost a lot of money (or at least it felt like it at the time), over several years and the residuary pain and discomfort that was left led me to an avoidance type behavior with my investments and trading.

I have also identified some great value investing opportunities that I would have liked to participate in earlier (e.g. Frontline - symbol: FRO and Sandisk - symbol: SNDK). I profited from both but no where near the potential that was available.

The thing that fascinates me most about value investing is the concept of the baby thrown out with the bath water. Because most of the professional money that is invested and traded in the markets moves like a herd in out of the popular sectors, when any given sector gets trashed over several years - the diamonds get massacred along with the rough.

Lets take the tech sector between 2000 - 2002 - absolutely decimated. Hidden among the wreckage however were Apple Computer (symbol: AAPL) and Research in Motion (symbol: RIMM). Well timed value investing could have accumulated major positions in both for a cost of $10,000. That investment would be worth $500,000 to $1,000,000 today. UNLEVERAGED.

So how do you distinguish the value traps from the value opportunities. We hope to find out over the next several months / years. I believe a system or method needs to be adopted that at a minimum incorporates the following:

1) Fundamental Analysis
a) dividend analysis
b) balance sheet analysis
c) cash flow analysis
2) Technical Analysis (re: charts)
3) Sector Analysis (company relative to others)
4) General Economic Analysis (bear vs. bear market, recession, or growing economy)
a) consideration of deflation v. inflation - how it affects the sector
5) Catalysts for end of the bear in the sector