Value Trap

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Value Trap

A stock with a lower-than-usual price that appears to be a value stock but is not. A value trap appears to be undervalued at first glance but its fundamentals are unhealthy and the stock is unlikely to recover in price. One may fall into a value trap by looking only at the stock's price but not at any other financial information.
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Hence, it is important to weed out value traps, that is, firms with suspect corporate governance or accounting.
Of course, cheapness alone is never a criterion for investing as value traps exist in banking.
Be wary of companies that could be value traps, or just avoid them altogether.
These stocks can be value traps," Morgan Stanley said in a note.
This is the valuation netherworld of growth investing since growth, admittedly more modest than in the pre-2008 glory days of the credit bubble, can be bought at a discount to say, Big Data, Biotech or even the Internet True, many bank stocks have been treacherous value traps, notably in Europe, as the fate of Barclays, Deutsche Bank, Erste Bank and even Banco Espirito Santo demonstrates.
That's why Parikh says that one must be on guard against value traps.
It aims to identify undervalued sectors based on a modified CAPE Ratio, and then uses momentum to eliminate potential value traps.
Low P/E's based on earnings that are falling apart are the thing that value traps are made of.
With a couple of exceptions - AIG and Legg Mason - we managed to avoid most of these value traps, and find some solid winners in the process.
On May 5th, Whitney Tilson and Glenn Tongue of T2 Partners will teach An Advanced Seminar on Value Investing: How to Decipher Financial Statements, Avoid Value Traps and Pick Investment Winners.
On the day before the Congress, Monday, May 7th, there will be two workshops: Whitney Tilson and Glenn Tongue will teach a full day Advanced Seminar on Value Investing where participants will learn how to decipher financial statements, avoid value traps and pick investment winners.
In all, our process is a very strict set of hurdles and the objectives are to combine an attractive risk/reward proposition and good fundamentals, while limiting downside risk and avoiding blow-ups and value traps.