History's greatest investor,  Warren Buffett, has two simple rules.

A big, sarcastic thank you, Warren!  
Sure, practically everyone has lost money in this market -- including Buffett. But take it easy on the Oracle here, because he's dead-on. Buffett's intense focus on not just investing in great opportunities but  avoiding terrible ones has been the key to epic success.

Avoiding soul-sucking investments -- what we investing nerds dub "value traps" -- is hardly rocket science. Yet, incredibly, I see investors new and salty alike make the same mistakes over and over again, breaking Buffett's rules and walking right into what seem like obvious value traps.

Having spent way too much time thinking about it, I've concluded that there are five primary categories of these dreaded mistakes. Avoiding these five traps will save you time, money, and more than a little heartache.

1. The quarter-life crisis  
These are real heartbreakers. You find a dominant company whose once sky-high growth has stalled, and its shares along with it. "TechWidget Corp. is trading at only 15 times earnings right now, only half its five-year average!" you say. "Its earnings have doubled over the past five years, but the shares are  down over the same time period. Sounds like a steal!"

Snap! You just walked into a value trap.

Investors falsely believe that names like  eBay (Nasdaq: EBAY) will see their relative valuations return to their headier days. They won't. Why? For starters, growth has slowed, technology evolved, and competition emerged. But all of that misses the  real reason.

Instead of returning incremental profits to shareholders via dividends, such companies wreck shareholder value by chasing growth through non-core expansion and high-profile acquisitions. Oh, and the ill-timed share repurchases that exist primarily to juice per-share earnings and help sop up all that stock option-driven dilution.

Steer clear of flailing tech titans until they're ready, willing, and able to follow the lead of a Microsoft (Nasdaq: MSFT) or an Oracle (Nasdaq: ORCL) into dividend-paying adulthood.

2. The soaring cyclical  
Here's the rub about cyclical stocks: Their P/E ratios are counterintuitive. They always look the cheapest when they've reached their priciest, and look priciest when they've reached their cheapest.

Take nearly any oil play from the summer of 2008 as an example.  Transocean (NYSE: RIG) looked cheap via a crude,  PEG-style valuation. But savvy investors know that cyclical companies' profits mean-revert, which is why cyclical stocks' P/E multiples stay low during booms and high during busts. In other words, you should be looking at cyclical stocks as their P/Es expand, not shrink.

3. The small-cap Methuselah  
The six-year small-cap bull run that came crashing to a halt last year was a painful reminder of a little-known value trap: the small-cap Methuselah.

Century-old small caps you'd never heard of were wrapping up five-year runs of 20% annualized earnings growth. Analysts went gaga, extrapolating those growth rates forward like the party would never end. Valuations followed suit.

Gaga analyst, meet mean-reversion.

You won't find many long-run compounding machines in the small-cap space. Show me a company with a long, proven history of creating serious shareholder value, and I'll show you a mid- or large-cap stock.

4. The too-high yielder  
A company usually has a high yield (think above 7%) for one of three reasons:

Broadly speaking, a fat dividend is a good thing. There's a fine line, though. At  Motley Fool Income Investor , we're looking for that sweet spot where an attractive payout meets rest-easy status.

Take one of my Income Investor  recommendations, Procter & Gamble (NYSE: PG). The shares were yielding near a multidecade high back when I recommended them in February.

P&G's portfolio of global brands -- Gillette, Tide, Charmin, Pampers, etc. -- funnel through a vast, unmatched distribution network, making for fat, rich, and growing profits. The shares were all but a screaming buy at the time, though they've since risen more than 23%. Of course, I still own the 2.9%-yielding shares myself.

5. The unopened book  
Book values need to be adjusted -- especially heading into and during recessions. Acquisition-happy companies inevitably end up slashing the goodwill they'd booked while making bloated acquisitions in the years previous.

The book values of asset-centric plays (homebuilders, natural resource producers, etc.) also need a good tweaking to reflect the depressed values of those assets. And financials, well, what can I say? Just ask any Citigroup  (NYSE: C) or  AIG  (NYSE: AIG) investor about the ease of assessing their balance sheets.

Don't get me wrong: I'm  all for buying stocks when they're down and out. We do just that at Income Investor . But there's a catch: We're only interested in good values if they also happen to be great businesses, companies with years of exceptional performance behind  and ahead of them. And, of course, ones that pay us to wait for our thesis to play out. Continued...