What are the most common mistakes people do while doing fundamental analysis of stocks?

Given the current levels of corporate governance in Indian companies I think one should do forensic accounting and corporate governance checks while doing fundamental analysis…What are some of the other ways to avoid mistakes while fundamental analysis…

@Karthik Can you sir.

I can list a few -

  1. Look beyond PE - Don’t buy stock by looking its PE. The PE can be low or high for specific reasons, so as an investor, you need to understand why?
  2. Low PE - As an extension of the first point, don’t fall for low PE stocks. If a stock is a low PE, then probably it is for a specific reason
  3. Cash flow - Look at cash flow statements and understand the cash cycles and the operating profitability. If the company is not making money from core operations, especially over a prolonged period, then probably it is not worth investing in
  4. Qualitative aspects - Unfortunately the qualitative aspects of a company cant be measured. But as an investor, you need to dig into as many softer aspects of the company as you can. Good investors spend more time on this than the quantitative aspects
  5. DCF - DCF is a model and any model is prone to modelling errors. So don’t spend too much time on this and rely heavily on it.
  6. Beyond DCF - Sometimes a relative valuation technique is better suited than DCF.
  7. Simple business - Stick to investing in a simple business, these are much easier to understand compared to a massive conglomerate.

Will be great if others can add to this list and share more insights.


Look for details especially debt and how it is used… Many crooks around