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

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Finance allah shmoop what is a value investor Well of

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value investors and investor who buy stocks that she believes

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have quote hidden unquote value That little wall street just

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isn't appreciating So uh aren't all investors value investors Well

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kind of yes And really no value investor Generally speaking

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in this context waits until a stock with good core

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assets stumbles The company falls on short term hard times

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and maybe quote should unquote traded twenty bucks a share

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But wall street was angry and disappointed and hurt that

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the company grew revenues only seven percent instead of the

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expected fifteen percent for a quarter to and the streets

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sold down the stock from eighteen to seven Well the

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proverbial baby is thrown out with the bathwater And well

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at this point the value investor steps in and buys

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the stock big They hold the stock it's a tte

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seven box The company slowly fixes itself in the stock

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price gradually creeps upward back to that eighteen figure And

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then the value investor likely sells the stock when it

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goes from cheap to being fairly priced like you know

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back in that eighteen twenty dollars target price kind of

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thing Yeah that's where it was supposed to be earlier

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all else being equal Well the normal cycle would then

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have the value investors sell those shares to a growth

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or mo mentum investor Who's credo is more like buy

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high sell higher versus the you know value investor who's

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all about by low then sell when fairly price that's

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like benji graham Look him up it's not a sexy

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but you can make big bank in value Land just

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asked that one billionaire who loves all you can eat 00:01:40.498 --> [endTime] restaurants Yeah what's his name again

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