Value Trap
Categories: Investing
You thought the stock was cheap at 7 times earnings. It was clearly a value...a bargain. At 7 bucks a share on earnings of a dollar, it screamed that it was a buy. But alas, it was a trap. Like Admiral Ackbar yelled in the first Star Wars.
Unfortunately earnings went not from a dollar to a dollar-twenty to a dollar-forty...but rather from a dollar to 70 cents to 30 cents to...whiffle ball. That "value" stock at 7 times earnings 3 years hence was at infinite times earnings of zero, and now, with the stock under a buck and in the process of being delisted, you can only sigh, wishing Admiral Ackbar had been your broker before you bought in at 7 bucks.
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Finance: What is a value investor?1 Views
Finance allah shmoop what is a value investor Well of
value investors and investor who buy stocks that she believes
have quote hidden unquote value That little wall street just
isn't appreciating So uh aren't all investors value investors Well
kind of yes And really no value investor Generally speaking
in this context waits until a stock with good core
assets stumbles The company falls on short term hard times
and maybe quote should unquote traded twenty bucks a share
But wall street was angry and disappointed and hurt that
the company grew revenues only seven percent instead of the
expected fifteen percent for a quarter to and the streets
sold down the stock from eighteen to seven Well the
proverbial baby is thrown out with the bathwater And well
at this point the value investor steps in and buys
the stock big They hold the stock it's a tte
seven box The company slowly fixes itself in the stock
price gradually creeps upward back to that eighteen figure And
then the value investor likely sells the stock when it
goes from cheap to being fairly priced like you know
back in that eighteen twenty dollars target price kind of
thing Yeah that's where it was supposed to be earlier
all else being equal Well the normal cycle would then
have the value investors sell those shares to a growth
or mo mentum investor Who's credo is more like buy
high sell higher versus the you know value investor who's
all about by low then sell when fairly price that's
like benji graham Look him up it's not a sexy
but you can make big bank in value Land just
asked that one billionaire who loves all you can eat 00:01:40.498 --> [endTime] restaurants Yeah what's his name again