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Equity Valuation Techniques
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subu76
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Quote subu76 Replybullet Topic: Value Traps
    Posted: 03/Sep/2009 at 9:25pm
Though the market has appreciated a bit I am sure a lot of us agree this is as good a time as any to build a long term portfolio. (Definitely better than 2007)
 
 
Value traps I am told is a long term investor's worse nightmare.
 
Please post your articles/thoughts/past experience to guide other Teddities
 
If there is a similar thread I'd request Basant Ji to delete this one.


Edited by subu76 - 03/Sep/2009 at 9:25pm
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subu76
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Quote subu76 Replybullet Posted: 03/Sep/2009 at 9:27pm
I am posting this article related to value traps which I found interesting.
 
There were 5 categories enumerated:
1. Quarter Life crisis.
2. Soaring cyclical
3. The small cap earnings grower
4. The too high yielder
5. The unopened book
 
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subu76
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Quote subu76 Replybullet Posted: 03/Sep/2009 at 9:29pm
I also have one question for Teddities...
 
Does the existence of value traps mean that an investor should look at past pricing patterns before making any investment?
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Monkey
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Quote Monkey Replybullet Posted: 03/Sep/2009 at 9:48pm

One very famous value trap is "Holding Company" model. There are many instances where share price of holding company is at good discount to the sum of market cap of underlying companies and some cash or other assets thrown in addition. It is very tempting to buy. However, this value never gets encashed and stock remains at discount forever.

Other very similar value trap is investment companies which are quoted at good discount to market value of underlying portfolio. Here also this discount remains forever.
 
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bharti
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Quote bharti Replybullet Posted: 03/Sep/2009 at 11:11pm
PSU Banks have generally been a value trap for long!
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subu76
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Quote subu76 Replybullet Posted: 03/Sep/2009 at 11:21pm

From some articles on the web...

High Insider ownership can also sometimes cause value traps esp if the organization is not doing well.
(As it prevents management from being changed)
 
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subu76
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Quote subu76 Replybullet Posted: 03/Sep/2009 at 11:22pm
On Monk's holding company's post:
 
A good discussion on holding companies and their discounts is here
 
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Monkey
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Quote Monkey Replybullet Posted: 03/Sep/2009 at 11:53pm
Thank you sir for the link!!
 
Since I am relatively new to this forum, I am not aware of many past discussions on various subject.
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