Value Trap

A term for a stock that has fallen sharply and was erroneously thought to be a value stock by investors.

Many self-proclaimed value-investors buy a stock for the sole reason that its price is down, and that it looks “cheap”, hoping to buy low and sell high. They reason that a stock will eventually regain its former heights. It is useful to keep in mind that the Enrons and Worldcoms of this world kept making new lows and seemed like attractive value buys all the way till their bankruptcy.

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