In an earlier article, I discussed legitimate reasons why even seasoned, obviously talented investors can get crushed by the market. I also argued that learning to get crushed like they do can be a surefire path to profitability. (No, really. Click here if you don't believe me.) This time, let's dish some dirt and discuss two key reasons why, um, less talented types frequently get shellacked. These are mistakes you'll want to avoid like the proverbial plague -- or maybe like financial stocks, beginning around March 2007.

Mistake No. 1: Not doing the math
Despite the market's deeply erratic behavior over the last 18 months or so, fundamental analysis is not dead. Far from it. Investors who go running after hot-prospect "story" stocks are likely to get burned, particularly amid the current market environment.

Consider Freeport-McMoRan Copper & Gold (NYSE: FCX). It's a solid company in terms of operational acumen, but all too many investors used the mining concern as a play on the commodities boom. It sported a nosebleed P/E back in the earlier years of this decade. When the commodities boom went bust, alas, so did the company's valuation. For the 12-month period that ended with the market's close on February 2, Freeport's stock had sunk by roughly 80% below its yearly high. Current P/E: 3.5.

Lesson learned?
Ouch, of course. But for long-term investors who've done their research -- and waited patiently for valuation reality to exert its eventual gravitational pull -- the story may have a happier ending. That's the lesson we can learn from masters of fundamental, brick-by-brick research such as Warren Buffett and Bruce Berkowitz -- senior manager of the fine, Buffett-esque Fairholme (FAIRX) fund. Each has fared far better than the broader market over the last 12 months, for the same reason they've trounced it over the course of many years: They do their homework.

Not for nothing, after all, is Fairholme's portfolio stocked (pun intended) not only with Buffett's Berkshire Hathaway (NYSE: BRK-A) holding company but also with the likes of Pfizer (NYSE: PFE) and UnitedHealth (NYSE: UNH). As of the fund's most recently reported portfolio, those names soaked up nearly 19% of assets. That's a concentrated strategy, but it's also focused on high-quality companies with lengthy track records of cranking out free cash flow -- a key Fairholme metric. Indeed, the investment maxims listed on the fund company's website include this gem of Foolish wisdom: "Cash counts (it's the only thing you can spend)."

Other Fairholme principles include "A to Z (research all aspects of a company)" and "Back to front (dig into the minutiae)." With those mantras in mind, one suspects that the team also sussed out those two health-care firms' profitability profiles relative to their current valuations. On the former front, each company checks in with industry-surpassing return-on-equity and return-on-asset figures, two key tools for gauging management's knack for getting the biggest bang for its company's bucks. And in terms of valuations, both look like bargains now, too, with prices that reflect a P/E discount to both their own historical averages and the broader market.

Bottom line: Crunching the numbers can go a long way toward helping you separate promising investment prospects from also-rans. Failing to do so can lead to a deflated portfolio.

That said, some wet-behind-the-ears types get spanked for putting too much faith in their elegant math, falling prey to the perils of false precision. Speaking of which …

Mistake No. 2: Doing the math
Fairholme fan though I am, the second of our crushing concerns causes me to quibble with another of the company's otherwise rock-solid investment maxims: "Don't guess (know!)."

Clearly, I'm no advocate of guessing when it comes investing, but I do take issue with that parenthetical. Rarely, if ever, is it possible to "know" with the kind of certainty that that exclamation mark seems to imply, particularly when it comes to the very tricky business of valuation. Sometimes companies that look like deep values go deeper still. Meanwhile, up-and-comers with little (and perhaps even nothing) in the way of free cash flow can take off like rockets once a catalyst -- such as a new product launch or FDA approval of a hotly anticipated pipeline drug -- finally kicks in.

The two conclusions we can draw here: Continued...