Lesson Learned: Cheap doesn’t always mean good.

Price is what you pay. Value is what you get

Warren Buffett

Value investing was made incredibly popular in the mid 20th Century by Warren Buffett and his teacher Benjamin Graham. Whilst valuation is still a significant part of every investors tool kit, the days of “cigarette butt investing” have largely passed. Nowadays, the stock market is so heavily analysed, that if a stock is cheap, there’s likely a reason that it’s cheap. Turnarounds are rarer than falling knives. 

Ways to manage this:

• Know why you’re investing, and learn about the business you’re investing in. 
• Be honest with yourself. If you are investing for the turnaround, have some strict guidelines for why you are buying in, and have an escape plan if it doesn’t go your way.

The wiki on Value investing has a good summary of the original strategy.