The absolute meltdown of financial stocks -- especially names like Lehman, Bear Stearns, and Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- has landed a body blow to the performance of quite a few well-respected value investors. Most notably, Bill Miller has seen his remarkable streak of beating the S&P 500 turn miserably, with his fund down about 30% so far this year. Overall, large-cap value funds are down an average of 24% over the past year.

So what happened? Basically, the pessimistic majority was 100% right on the future of many of these financial firms and the contrarians were completely wrong. But I think there was a larger problem for many of these top value investors: they abandoned their principles and bought big into companies they didn't understand, with risks and balance sheets that no one understands.

Eugene Fama told (subscription required) The Wall Street Journal that it's "not true" that value investing is safer than other forms of investing.

I disagree. What's risky is investing in stocks that you don't understand based on superficial analysis, and that's what got people like Bill Miller in trouble.