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07-07-2023, 07:43 AM
I think the concept of a "value trap" is that what you though was a "value" stock turned out to be a dud. There is only one way this can happen. You were wrong about the underpricing ie your valuation was wrong. I guess in practice, you have waited for years for the price to turn around and it never happened. I don't think it applies if you waited for only a few weeks or months.
Now there have been cases where the value did not deteriorate after many years eg the performance of the company improved. But the market still fail to reprice it. Is this a value trap? Not by my definition. I think it is wrong to use changes in market price as the basis. Rather if you are going to be wrong about the valuation, then it must be based on fundamentals.
Now there have been cases where the value did not deteriorate after many years eg the performance of the company improved. But the market still fail to reprice it. Is this a value trap? Not by my definition. I think it is wrong to use changes in market price as the basis. Rather if you are going to be wrong about the valuation, then it must be based on fundamentals.